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Mr. Keynes, the Classics and the new Keynesians: A suggested formalization


  • Rodolphe Dos Santos Ferreira


The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS-LM the generality of Keynes’s theory, clarifying the distinction of voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes’s relative wage hypothesis.

Suggested Citation

  • Rodolphe Dos Santos Ferreira, 2013. "Mr. Keynes, the Classics and the new Keynesians: A suggested formalization," Working Papers of BETA 2013-16, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2013-16

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    References listed on IDEAS

    1. Farmer, Roger E.A., 2016. "The Evolution Of Endogenous Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 20(02), pages 544-557, March.
    2. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
    3. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Rodolphe DOS SANTOS FERREIRA & Philippe MICHEL, 1991. "Keynes’ Aggregate Supply Function and the Principle of Effective Demand," Discussion Papers (REL - Recherches Economiques de Louvain) 1991023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. John Bryant, 1983. "A Simple Rational Expectations Keynes-type Model," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 525-528.
    7. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-141, March.
    8. D. G. Champernowne, 1936. "Unemployment, Basic and Monetary: the Classical Analysis and the Keynesian," Review of Economic Studies, Oxford University Press, vol. 3(3), pages 201-216.
    9. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    10. Axel Leijonhufvud, 1988. "Did Keynes Mean Anything? Rejoinder to Yeager," Cato Journal, Cato Journal, Cato Institute, vol. 8(1), pages 209-217, Spring/Su.
    11. Kevin D. Hoover, 1995. "Relative Wages, Rationality, and Involuntary Unemployment in Keynes's Labor Market," History of Political Economy, Duke University Press, vol. 27(4), pages 653-685, Winter.
    12. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    13. Sylvie Rivot, 2011. "Special remedies for special causes: involuntary unemployment in Keynes' political writings," Cambridge Journal of Economics, Oxford University Press, vol. 35(4), pages 785-803.
    14. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-199, April.
    15. Lawrence R. Klein, 1947. "Theories of Effective Demand and Employment," Journal of Political Economy, University of Chicago Press, vol. 55, pages 108-108.
    16. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
    17. Rodolphe Dos Santos Ferreira & Philippe Michel, 2013. "Keynes' Wage–Price Dynamics," Metroeconomica, Wiley Blackwell, vol. 64(1), pages 44-72, February.
    18. Lars E. O. Svensson, 1986. "Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 385-405.
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    More about this item


    Keynes’s model; involuntary unemployment; coordination failures; liquidity trap; relative wages.;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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