Keynesian, New Keynesian, and New Classical Economics
Much of the new theory of macro-economics that has been built upon micro-economic models of imperfect information leads to conclusions which are surprisingly close in spirit to Keynes' original analysis. This paper summarizes the macro-economic implications of information-based models of efficiency wages, credit-rationing and the breakdown of financial markets for equity-type securities. It shows how these models lead to behavior by firms and interactions among economic agents that account for many of the phenomena identified by Keynes in qualitative terms which were largely lost in subsequent formalizations of the Keynesian model. These imperfect information macro-models provide consistent theoretical explanations in the Keynesian spirit in unemployment, investment concentrated business cycles, rigid prices and the effectiveness of monetary and fiscal policy interventions. In doing so, they reconcile macro and micro-economic analysis in a way that has so far been achieved neither by the traditional Keynesians, who assumed away the micro-dimension of the problem, nor by the new classical economists who assumed away the macro-dimension of the problem.
|Date of creation:||Feb 1987|
|Date of revision:|
|Publication status:||published as Greenwald, Bruce and Joseph E. Stiglitz. "Keynesian, New Keynesian and New Classical Economics," Oxford Economic Papers, Vol. 39, 1987, pp. 119-132.|
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- Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
- Alan S. Blinder & Joseph E. Stiglitz, 1983.
"Money, Credit Constraints, and Economic Activity,"
NBER Working Papers
1084, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
- Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
- Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
- Bruce Greenwald & Joseph E. Stiglitz, 1987. "Money, Imperfect Information and Economic Fluctuations," NBER Working Papers 2188, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-27, December.
- Joseph E. Stiglitz, 1983. "On the Relevance or Irrelevance of Public Financial Policy: Indexation,Price Rigidities and Optimal Monetary Policy," NBER Working Papers 1106, National Bureau of Economic Research, Inc.
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