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On the Interplay between Keynesian and Supply Side Economics

Author

Listed:
  • Karanassou, Marika

    (Department of Economics, Queen Mary and Westfield College, London, United Kingdom)

  • Snower, Dennis J.

    (The Kiel Institute for the World Economy, Kiel, Germany)

Abstract

Conventional wisdom suggests that nominal, demand-side shocks have only temporary effects on real macroeconomic magnitudes and that the duration of their effects depends on the degree of nominal inertia. It is also argued that, in the absence of unit roots, temporary supply-side shocks also have only temporary real affects and that the duration of these effects depends on the various sources of real inertia. Our analysis indicates that there is a potentially important interplay between real and nominal inertia in generating the persistent effects of real and nominal shocks. In this sense, then, Keynesian and supply-side economics are mutually interdependent. Our analysis has identified circumstances when real and nominal inertia are complementary in generating real and nominal persistence. Here, we argue, lies a potentially crucial, but as yet largely unexplored, set of determinants of the effectiveness of Keynesian and supply-side economic policies.

Suggested Citation

  • Karanassou, Marika & Snower, Dennis J., 2007. "On the Interplay between Keynesian and Supply Side Economics," Economics Series 206, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:206
    as

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    File URL: http://www.ihs.ac.at/publications/eco/es-206.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Unemployment; employment; wage setting; labour force participation; labour market dynamics; unemployment persistence; imperfect unemployment responsiveness;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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