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The New Keynesian view of aggregate demand: some reflections from a Sraffian standpoint


  • White, Graham


The paper contends that the derivation of the aggregate demand curve in the new Keynesian literature is insufficient to provide the theoretical ground for the use to which it is usually put; namely, as a theoretical basis for the claim that long-run wage and price flexibility would push a capitalist economy to the full-employment or "natural" level of output. It is argued that the derivation solely on the basis of the propositions about optimising household consumption expenditures is insufficient to guarantee a decreasing aggregate demand function without circular reasoning. This point is clarified by use of a very simple two-commodity production model of long-run steady states due to Spaventa and Nell. To guarantee a decreasing aggregate demand function, the new Keynesian approach must invoke the kinds of propositions used in more traditional derivations; propositions which themselves are in question on capital-theoretic gr ounds.

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  • White, Graham, 2012. "The New Keynesian view of aggregate demand: some reflections from a Sraffian standpoint," Working Papers 2012-15, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2123/8876

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    References listed on IDEAS

    1. Hodgson, Geoff, 1986. "Behind Methodological Individualism," Cambridge Journal of Economics, Oxford University Press, vol. 10(3), pages 211-224, September.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    3. Giancarlo Corsetti & Paolo Pesenti, 2009. "The Simple Geometry of Transmission and Stabilization in Closed and Open Economies," NBER Chapters,in: NBER International Seminar on Macroeconomics 2007, pages 65-116 National Bureau of Economic Research, Inc.
    4. John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
    5. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-139, Supplemen.
    6. Fane, George, 1985. "A derivation of the IS-LM model from explicit optimizing behavior," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 493-508.
    7. Antonella Palumbo & Attilio Trezzini, 2003. "Growth without normal capacity utilization," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(1), pages 109-135.
    8. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
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