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Non-stabilizing Flexibility:From the Contributions By Keynes and Kalecki Towards a Post-Keynesian Approach

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  • Sau, Lino

Abstract

New and old mainstream macroeconomics argues that price flexibility stabilizes the economy. After a decline in aggregate demand, the more rapid prices fall, the faster output returns to its full employment level. The theoretical basis for this result is the well known "Pigou effect". However both Keynes and Kalecki rejected the thesis that price flexibility, in a demand-induced recession, can be stabilizistabilizing. This paper seeks to contrast Keynes's and Kalecki's ideas with the mainstream and discuss and alternative approach in the spirit of the post-keynesian's debt-deflation school.

Suggested Citation

  • Sau, Lino, 2006. "Non-stabilizing Flexibility:From the Contributions By Keynes and Kalecki Towards a Post-Keynesian Approach," MPRA Paper 3391, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3391
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    References listed on IDEAS

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    1. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    2. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-1044, December.
    3. Julio Lopez G., 2002. "Two Versions of the Principle of Effective Demand: Kalecki and Keynes," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 24(4), pages 609-621, July.
    4. John Caskey & Steven Fazarri, 1991. "Debt, Price Flexibility and Aggregate Stability," Economics Working Paper Archive wp_52, Levy Economics Institute.
    5. Paul Davidson, 2000. "There Are Major Differences between Kalecki’s Theory of Employment and Keynes’s General Theory of Employment Interest and Money," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(1), pages 3-25, September.
    6. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    7. Mankiw, N. Gregory, 1992. "The reincarnation of Keynesian economics," European Economic Review, Elsevier, vol. 36(2-3), pages 559-565, April.
    8. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 77-114.
    9. Julio López G., 2002. "Two Versions of the Principle of Effective Demand: Kalecki and Keynes," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 24(4), pages 609-622, July.
    10. King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, vol. 38(3-4), pages 419-445, April.
    11. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
    12. Thomas I. Palley, 2002. "Endogenous Money: What it is and Why it Matters," Metroeconomica, Wiley Blackwell, vol. 53(2), pages 152-180, May.
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    Cited by:

    1. Passarella, Marco, 2011. "From the village fair to Wall Street. The Italian reception of Minsky’s economic thought," MPRA Paper 49593, University Library of Munich, Germany.

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    More about this item

    Keywords

    Non-stabilizing flexibily; Pigou effect: Fisher effect; Debt-deflation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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