Working Paper: NBER ID: w2156
Authors: Bennett T. McCallum
Abstract: This paper provides an outline of the historical development of Keynesian macroeconomics. It first argues that the business-cycle model of J.M. Keynes's General Theory featured analytical ingredients that were present in earlier writings and attained its theoretical precision only in contributions made later. Remaining sections of the paper focus on the key characteristic of Keynesian theory, namely, a postulated stickiness of nominal prices that enables aggregate demand to play a greater role in output determination than it does in flexible-price classical analysis. Three approaches that have been historically important are ones relying upon (i) equilibria conditional on given prices, (i ) algebraic Phillips-type price adjustment relations, and (iii) equilibrium analysis 'with incomplete information. The paper reviews difficulties with each of these and concludes with a discussion of relevant issues of today.
Keywords: Keynesian economics; macroeconomics; price stickiness; aggregate demand
JEL Codes: E12; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sticky prices (D41) | aggregate demand (E00) |
| sticky prices (D41) | output determination (C67) |
| aggregate demand (E00) | output determination (C67) |
| sticky prices (D41) | employment (J68) |
| wage adjustments (J31) | aggregate demand (E00) |
| multiplier effect (E16) | output determination (C67) |
| earlier theorists (B15) | current understanding of Keynesian economics (E12) |