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Back to Keynes?

Author

Listed:
  • 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 Group, 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. Théret, Bruno, 2011. "Du keynésianisme au libertarianisme.La place de la monnaie dans les transformations du savoir économique autorisé," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 10.
    2. João T. Jalles, 2022. "Do credit rating agencies reward fiscal prudence?," International Finance, Wiley Blackwell, vol. 25(1), pages 2-22, April.
    3. repec:dau:papers:123456789/7629 is not listed on IDEAS
    4. Argesanu, Nicolae Razvan, 2012. "Statul de drept din perspectivă economică [Rule of law from economic perspective]," MPRA Paper 36643, University Library of Munich, Germany.
    5. Eduardo Garzón Espinosa & Bibiana Medialdea García & Esteban Cruz Hidalgo, 2021. "Fiscal Policy Approaches: An Inquiring Look From The Modern Monetary Theory," Journal of Economic Issues, Taylor & Francis Journals, vol. 55(4), pages 999-1022, October.
    6. Yuli Radev, 2015. "New dynamic disequilibrium," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 65-90.
    7. Ronny Mazzocchi, 2013. "Investment-Saving Imbalances with Endogenous Capital Stock," DEM Discussion Papers 2013/14, Department of Economics and Management.
    8. Roberto Tamborini, 2010. "Monetary Policy With Investment–Saving Imbalances," Metroeconomica, Wiley Blackwell, vol. 61(3), pages 473-509, July.
    9. 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.
    10. Roberto Tamborini, 2010. "The Macroeconomics of Imperfect Capital Markets: Whither Saving-Investment Imbalances?," Contributions to Economics, in: Giorgio Calcagnini & Enrico Saltari (ed.), The Economics of Imperfect Markets, chapter 0, pages 137-166, Springer.
    11. Bill Martin, 2007. "Fiscal Policy in a Stock-Flow consistent (SFC) Model: A Comment," Working Papers wp341, Centre for Business Research, University of Cambridge.
    12. 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.
    13. Yuli Radev, 2016. "Dynamic disequilibrium and investment - saving imbalance," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 126-149.
    14. Bertrand Candelon & Joan Muysken & Robert Vermeulen, 2010. "Fiscal policy and monetary integration in Europe: an update," Oxford Economic Papers, Oxford University Press, vol. 62(2), pages 323-349, April.
    15. João T. Jalles, 2020. "Explaining Africa's public consumption procyclicality: Revisiting old evidence," International Finance, Wiley Blackwell, vol. 23(2), pages 297-323, August.
    16. Mariam A. Voskanyan, 2022. "Government policy to maintain macroeconomic stability: The case of Armenia," Journal of New Economy, Ural State University of Economics, vol. 23(1), pages 24-42, April.
    17. Ronny Mazzocchi, 2013. "Scope and Flaws of the New Neoclassical Synthesis," DEM Discussion Papers 2013/13, Department of Economics and Management.
    18. Jalles, João Tovar, 2018. "Fiscal rules and fiscal counter-cyclicality," Economics Letters, Elsevier, vol. 170(C), pages 159-162.
    19. 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.

    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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