IDEAS home Printed from https://ideas.repec.org/a/taf/irapec/v23y2009i4p427-444.html
   My bibliography  Save this article

Keynes, investment, unemployment and expectations

Author

Listed:
  • Ron Smith
  • Gylfi Zoega

Abstract

In Keynes' General Theory, investment determines effective demand, which determines unemployment and the labour market plays a negligible role. In New Keynesian models, labour market institutions determine the natural rate of unemployment and the speed at which unemployment adjusts to it. Investment is mostly ignored as a key variable behind the problem of high unemployment, despite a strong empirical association between investment and unemployment. We discuss the evolution of the 'Keynesian' model, and how in the process of domesticating the General Theory, the central relationship between unemployment and investment and the role of the state of confidence was bred out of the model. We then present some evidence of the centrality of investment and expectations to the long-term evolution of unemployment in OECD countries. We also argue that recent results in finance, which find that individuals do not behave rationally and, moreover, that there may be no basis for rational calculation, provides support for Keynes's notion that animal spirits play a central role in investment.

Suggested Citation

  • Ron Smith & Gylfi Zoega, 2009. "Keynes, investment, unemployment and expectations," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(4), pages 427-444.
  • Handle: RePEc:taf:irapec:v:23:y:2009:i:4:p:427-444
    DOI: 10.1080/02692170902954767
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/02692170902954767
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. James H. Stock & Mark W. Watson, 2005. "Implications of Dynamic Factor Models for VAR Analysis," NBER Working Papers 11467, National Bureau of Economic Research, Inc.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Assar Lindbeck & Dennis J. Snower, 1989. "The Insider-Outsider Theory of Employment and Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262074x, January.
    4. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tafadzwa Ruzive & Thando Mkhombo & Simba Mhaka & Nomahlubi Mavikela & Andrew Phiri, 2017. "Elecricity intensity and unemployment in South Africa: A quantile regression analysis," Working Papers 1711, Department of Economics, Nelson Mandela University, revised Sep 2017.
    2. Giovanni Melina & Stefania Villa, 2014. "Fiscal Policy And Lending Relationships," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 696-712, April.
    3. Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.
    4. Juan Carlos Cuestas & Bruce Philp, 2010. "Exploitation and the class struggle," Working Papers 2010/2, Nottingham Trent University, Nottingham Business School, Economics Division.
    5. repec:taf:irapec:v:31:y:2017:i:1:p:83-107 is not listed on IDEAS
    6. Catalin Angelo Ioan & Gina Ioan, 2013. "An Equilibrium Model for an Open Economy. Romania’s Case," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(1), pages 102-125, February.
    7. Jósef Sigurdsson, 2013. "Capital Investment and Equilibrium Unemployment," Economics wp61, Department of Economics, Central bank of Iceland.

    More about this item

    Keywords

    unemployment; investment; Keynesian theory;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:irapec:v:23:y:2009:i:4:p:427-444. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CIRA20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.