A New Micro-Foundation for Keynesian Economics
The standard micro-founded macroeconomics starts with optimization exercises to derive the precise behavior of the representative agent, and regards the macroeconomy as a homothetic enlargement of a micro agent. This paper takes a different approach, and presents a new micro-foundation for Keynesian economics. The key concept is stochastic macro-equilibrium. It is a natural extension of the labor search theory.
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