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Back to Keynes?

Author

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  • Frederick van der Ploeg

Abstract

After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether the New Keynesian Phillips curve and the New Neoclassical Synthesis capture the quintessential features stressed by J.M. Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies of the New Neoclassical Synthesis, however, are its inability to predict a pro-cyclical real wage in the face of demand shocks and the absence of inventories, credit constraints and bankruptcies in explaining the business cycle. Furthermore, it fails to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured. (JEL E12, E32, E63)

Suggested Citation

  • Frederick van der Ploeg, 2005. "Back to Keynes?," CESifo Economic Studies, CESifo, vol. 51(4), pages 777-822.
  • Handle: RePEc:oup:cesifo:v:51:y:2005:i:4:p:777-822.
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    File URL: http://hdl.handle.net/10.1093/cesifo/51.4.777
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    Cited by:

    1. Roberto Tamborini, 2006. "Back to Wicksell? In search of the foundations of practical monetary policy," Department of Economics Working Papers 0602, Department of Economics, University of Trento, Italia.
    2. repec:dau:papers:123456789/7629 is not listed on IDEAS
    3. Argesanu, Nicolae Razvan, 2012. "Statul de drept din perspectiv─â economic─â
      [Rule of law from economic perspective]
      ," MPRA Paper 36643, University Library of Munich, Germany.
    4. Debrun, Xavier & Jonung, Lars, 2019. "Under threat: Rules-based fiscal policy and how to preserve it," European Journal of Political Economy, Elsevier, vol. 57(C), pages 142-157.
    5. Ronny Mazzocchi & Roberto Tamborini & Hans-Michael Trautwein, 2009. "The Two Triangles: what did Wicksell and Keynes know about macroeconomics that modern economists do not (consider)?," Department of Economics Working Papers 0906, Department of Economics, University of Trento, Italia.
    6. Roberto Tamborini, 2008. "The macroeconomics of imperfect capital markets. Whither saving-investment imbalances?," Department of Economics Working Papers 0815, Department of Economics, University of Trento, Italia.

    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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