The Stability of Full Employment. A Reconstruction of Chapter 19-Keynesianism
In the vein of chapter 19 of Keynes's "General Theory" the following study investigates the dynamic properties of the traditional Keynesian model of the neoclassical synthesis. The dynamics (stability vs. instability, monotonic vs. oscillatory adjustment) is examined - in the absence of active stabilisation policy, that is assuming, in particular, monetary policy to follow Friedman's constant money growth-rule - by appending a wage Phillips curve (with inflationary expectations) and adaptive expectations (with rational expectations as a limiting case) to the static model. Furthermore two regimes are distinguished: on the one hand the "flexible- interest-rate-regime" where the nominal interest rate is free to move and on the other hand the "zero-interest- rate-regime" (similar to the Keynesian "liquidity trap") where the non-negativity restriction on the nominal interest rate becomes binding. Some of the conclusions are (i) that although possibly stable within the flexible- interest-regime the system as a whole might exhibit corridor stability", (ii) that wage flexibility can be (and that the inclusion of inflationary expectations into the Phillips curve certainly is) destabilising, and (iii) that increasing the rate of steady-state inflation makes it "more probable" that full-employment equilibrium isstable.
|Date of creation:||Apr 1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.wu.ac.at/economics/en
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dimand, R.W., 1994.
"Irving Fisher, J.M. Keynes and the Transition to Modern Macroeconomics,"
1994-19, Brock University, Department of Economics.
- Robert W. Dimand, 1995. "Irving Fisher, J. M. Keynes, and the Transition to Modern Macroeconomics," History of Political Economy, Duke University Press, vol. 27(5), pages 247-266, Supplemen.
- Tobin, James, 1975.
"Keynesian Models of Recession and Depression,"
American Economic Review,
American Economic Association, vol. 65(2), pages 195-202, May.
- Bennett T. McCallum, 1986.
"On "Real" and "Sticky-Price" Theories of the Business Cycle,"
NBER Working Papers
1933, National Bureau of Economic Research, Inc.
- McCallum, Bennett T, 1986. "On "Real' and "Sticky-Price' Theories of the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 397-414, November.
- Collard, David, 1996. "Pigou and Modern Business Cycle Theory," Economic Journal, Royal Economic Society, vol. 106(437), pages 912-24, July.
- Howitt, Peter W, 1978. " The Limits to Stability of a Full-employment Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(3), pages 265-82.
- Collard, David A, 1983. "Pigou on Expectations and the Cycle," Economic Journal, Royal Economic Society, vol. 93(37), pages 411-14, June.
- Lofgren, Karl-Gustaf, 1979. " The Corridor and Local Stability of the Effective Excess Demand Hypothesis: A Result," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(1), pages 30-47.
- J. Bradford De Long & Lawrence H. Summers, 1985.
"Is Increased Price Flexibility Stabilizing?,"
NBER Working Papers
1686, National Bureau of Economic Research, Inc.
- Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
- James Tobin, 1991.
"Price Flexibility and Output Stability: An Old Keynesian View,"
Cowles Foundation Discussion Papers
994R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1991.
- 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.
- Hansjorg Klausinger, 1999. "German Anticipations of the Keynesian Revolution?: The Case of Lautenbach, Neisser and Ropke," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 6(3), pages 378-403.
- Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, June.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwwuw:wuwp063. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics)
If references are entirely missing, you can add them using this form.