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Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework

  • Koutsobinas, Theodore

Abstract The utilization of a real-interest rate rule in Romer’s new-Keynesian IS-MP approach, which is consistent with new synthesis intertemporal baseline macroeconomic models, provides a contemporary alternative to the standard old-Keynesian IS-LM model and moves back the emphasis on general accounts of the macroeconomic process. Despite its merits, the IS-MP approach neglects completely the influence of the liquidity-preference typically associated in pure Keynes framework with the impact of confidence and animal spirits. In the present article, we show how the macroeconomic process takes place in terms of both a real interest-rate rule and liquidity-preference through the yield curve. This new synthesis, which is shown to be consistent with standard intertemporal analysis, proves to be useful not only because it maintains the illustrative advantages of either the old-Keynesian model with respect to liquidity-preference or the new-Keynesian model with respect to the interest-rate rule but also because it can be utilized as an effective communicative tool among different strands of economic thought.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43027.

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Date of creation: 16 Dec 2011
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Handle: RePEc:pra:mprapa:43027
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  1. Robert J. Shiller, 2010. "How Should the Financial Crisis Change How We Teach Economics?," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 403-409, September.
  2. Peter Howells & Iris Biefang-Frisancho Mariscal, 2006. "Monetary Policy Regimes. A Fragile Consensus," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 35(1), pages 62-83, April.
  3. Shiller Robert J., 2009. "Policies to Deal with the Implosion in the Mortgage Market," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(3), pages 1-25, March.
  4. David Romer, 2000. "Keynesian Macroeconomics without the LM Curve," NBER Working Papers 7461, National Bureau of Economic Research, Inc.
  5. Michael Woodford, 2010. "Financial Intermediation and Macroeconomic Analysis," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 21-44, Fall.
  6. Matthew Canzoneri & Robert Cumby & Behzad Diba & David Lãpez-Salido, 2008. "Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1667-1698, December.
  7. George A. Akerlof, 2002. "Behavioral Macroeconomics and Macroeconomic Behavior," American Economic Review, American Economic Association, vol. 92(3), pages 411-433, June.
  8. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
  9. Fisher, W.H. & Turnovsky, S.J., 1991. "Fiscal Policy and the term Structure of Interest Rates: An Intertemporal Optimizing Analysis," Working Papers 91-20, University of Washington, Department of Economics.
  10. Tobin, James, 1981. "Money and Finance in the Macro-Economic Process," Nobel Prize in Economics documents 1981-1, Nobel Prize Committee.
  11. Michael Woodford, 2009. "Convergence in Macroeconomics: Elements of the New Synthesis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 267-79, January.
  12. Theodore T. Koutsobinas, 2011. "Liquidity preference in a portfolio framework and the monetary theory of Kahn," Cambridge Journal of Economics, Oxford University Press, vol. 35(4), pages 751-769.
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