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Non- Stabilizing Flexibility: from the Contributions by Keynes and Kalecki towards a Post-Keynesian Approach

  • Lino Sau
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New and old mainstream macroeconomics argues that price flexibility stabilizes the economy. After a decline in aggregate demand, the more rapid prices fall, the faster output returns to its full employment level. The theoretical basis for this result is the well known "Pigou effect". However both Keynes and Kalecki rejected the thesis that price flexibility, in a demand-induced recession, can be stabilizistabilizing. This paper seeks to contrast Keynes's and Kalecki's ideas with the mainstream and discuss and alternative approach in the spirit of the post-keynesian's debt-deflation school.

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Article provided by FrancoAngeli Editore in its journal STUDI ECONOMICI.

Volume (Year): 2006/88 (2006)
Issue (Month): 88 ()
Pages: 79-92

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Handle: RePEc:fan:steste:v:html10.3280/ste2006-088004
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  1. Mankiw, N. Gregory, 1992. "The reincarnation of Keynesian economics," European Economic Review, Elsevier, vol. 36(2-3), pages 559-565, April.
  2. J. Bradford De Long & Lawrence H. Summers, 1985. "Is Increased Price Flexibility Stabilizing?," NBER Working Papers 1686, National Bureau of Economic Research, Inc.
  3. David Romer, 1993. "The New Keynesian Synthesis," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 5-22, Winter.
  4. King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, vol. 38(3-4), pages 419-445, April.
  5. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  6. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
  7. James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
  8. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  9. Thomas I. Palley, 2002. "Endogenous Money: What it is and Why it Matters," Metroeconomica, Wiley Blackwell, vol. 53(2), pages 152-180, 05.
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