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A Critique of the New Consensus View of Monetary Policy

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  • Peter Kriesler
  • Marc Lavoie

Abstract

This paper seeks to look at the underlying framework of the New Consensus models of macroeconomic policy for inflation and unemployment, providing a post-Keynesian critique. In the light of this critique, the model is reformulated, with its basic structure intact, but with alternate post-Keynesian specifications of the Phillips curve being considered. It is shown that such modifications, either allow a long run trade-off between the rate of inflation and the level of output, the rate of capacity utilisation and, therefore, unemployment, or, in our preferred specification, changes in output and capacity have no implications for inflation over a large range of capacity utilisation. In either case, macroeconomic policy is restored to its role in maintaining full employment.

Suggested Citation

  • Peter Kriesler & Marc Lavoie, 2005. "A Critique of the New Consensus View of Monetary Policy," The Economic and Labour Relations Review, , vol. 16(1), pages 7-15, July.
    • Handle: RePEc:sae:ecolab:v:16:y:2005:i:1:p:7-15
    DOI: 10.1177/103530460501600102
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    References listed on IDEAS

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    1. Eckhard Hein, 2002. "Monetary policy and wage bargaining in the EMU: restrictive ECB policies, high unemployment, nominal wage restraint and inflation above the target," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 299-337.
    2. Philip Arestis & Malcolm Sawyer, 2005. "Reinventing Fiscal Policy," Palgrave Macmillan Books, in: Blandine Laperche & Dimitri Uzunidis (ed.), John Kenneth Galbraith and the Future of Economics, chapter 9, pages 105-125, Palgrave Macmillan.
    3. Mark Setterfield, 2004. "Central Banking, Stability and Macroeconomic Outcomes: A Comparison of New Consensus and Post-Keynesian Monetary Macroeconomics," Chapters, in: Marc Lavoie & Mario Seccareccia (ed.), Central Banking in the Modern World, chapter 2, pages 35-56, Edward Elgar Publishing.
    4. Marc Lavoie, 1996. "Traverse, Hysteresis, and Normal Rates of Capacity Utilization in Kaleckian Models of Growth and Distribution," Review of Radical Political Economics, Union for Radical Political Economics, vol. 28(4), pages 113-147, December.
    5. John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
    6. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    7. Mark Setterfield, 2002. "Introduction: A Dissenter's View of the Development of Growth Theory and the Importance of Demand-Led Growth," Chapters, in: Mark Setterfield (ed.), The Economics of Demand-Led Growth, chapter 1, Edward Elgar Publishing.
    8. Marc Lavoie, 2004. "The New Consensus on Monetary Policy Seen from a Post-Keynesian Perspective," Chapters, in: Marc Lavoie & Mario Seccareccia (ed.), Central Banking in the Modern World, chapter 1, pages 15-34, Edward Elgar Publishing.
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    Cited by:

    1. Neil Hart, 2011. "Mainstream Macroeconomics: A ‘Keynesian’ Revival?," The Economic and Labour Relations Review, , vol. 22(1), pages 17-40, May.

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