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Aggregate Demand and Micro Behavior: A New Perspective on Keynesian Macroeconomics

Author

Listed:
  • Steven M. Fazzari

    (The Jerome Levy Economics Institute)

  • Piero Ferri

    (The Jerome Levy Economics Institute)

  • Edward Greenberg

    (The Jerome Levy Economics Institute)

Abstract

We analyze the microfoundations for Keynesian aggregate demand effects by considering the link between aggregate demand and firm production decisions under monopolistic competition. Macroeconomic equilibrium is characterized in a simple graphical framework that facilitates comparison of several major approaches to modeling Keynesian microfoundations, including equilibrium theories, "new Keynesian" sticky price models, and more traditional sticky wage approaches. We use this framework to develop an original perspective on aggregate demand effects according to which aggregate demand shocks directly affect the demand conditions and production choices of individual firms. The results require neither nominal rigidity nor expectation errors. Nominal disinflation is ineffective in offsetting the real effects of demand shocks if aggregate demand is insensitive to nominal prices.

Suggested Citation

  • Steven M. Fazzari & Piero Ferri & Edward Greenberg, 1999. "Aggregate Demand and Micro Behavior: A New Perspective on Keynesian Macroeconomics," Macroeconomics 9902005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:9902005
    Note: Type of Document - Acrobate PDF File; prepared on IBM PC; to print on PostScript; pages: 40; figures: included
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    References listed on IDEAS

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    Cited by:

    1. Steven M. Fazzari, 1999. "Minsky and the Mainstream: Has Recent Research Rediscovered Financial Keynesianism?," Economics Working Paper Archive wp_278, Levy Economics Institute.

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