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Prolegomena to Realistic Monetary Macroeconomics: A Theory of Intelligible Sequences

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  • Wynne Godley
  • Marc Lavoie

Abstract

This paper sets out a rigorous basis for the integration of Keynes-Kaleckian macroeconomics (with constant or increasing returns to labor, multipliers, mark-up pricing, etc.) with a model of the financial system (comprising banks, loans, credit money, equities, etc.), together with a model of inflation. Central contentions of the paper are that, with trivial exceptions, there are no equilibria outside financial markets, and the role of prices is to distribute the national income, with inflation sometimes playing a key role in determining the outcome. The model deployed here describes a growing economy that does not spontaneously find a steady state even in the long run, but which requires active management of fiscal and monetary policy if full employment without inflation is to be achieved. The paper outlines a radical alternative to the standard narrative method used by post-Keynesians as well as by Keynes himself.

Suggested Citation

  • Wynne Godley & Marc Lavoie, 2006. "Prolegomena to Realistic Monetary Macroeconomics: A Theory of Intelligible Sequences," Economics Working Paper Archive wp_441, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_441
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    References listed on IDEAS

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    1. Claudio Dos Santos & Gennaro Zezza, 2005. "A Simplified Stock-Flow Consistent Post-Keynesian Growth Model," Macroeconomics 0504019, EconWPA.
    2. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-239, September.
    3. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, April.
    4. Marglin, Stephen A, 1984. "Growth, Distribution, and Inflation: A Centennial Synthesis," Cambridge Journal of Economics, Oxford University Press, vol. 8(2), pages 115-144, June.
    5. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
    6. Luigi L. Pasinetti, 2005. "The Cambridge School of Keynesian Economics," Cambridge Journal of Economics, Oxford University Press, vol. 29(6), pages 837-848, November.
    7. Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 259-293, Special I.
    8. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
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