New Keynesian model
Sources:
The New Keynesian model is discussed elaborately by several experts. Here are the key points:
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Ricardo Reis on New Keynesian Economics:
- He describes the modern New Keynesian model as an evolution of the old ISLM model, now incorporating intertemporal consumption trade-offs rather than merely focusing on investment. The model still pivots around the real interest rate and its effect on consumption decisions, balancing between today's and tomorrow's consumption 1.
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Casey Mulligan on Modern Keynesian Models:
- He indicates that modern Keynesian models acknowledge complexities such as investment and the necessity of sourcing money, recognizing empirical multipliers linking government spending to employment or output. There's skepticism regarding the efficacy of paying for non-productive labor to boost the economy, hinting at a disconnect between academic theories and practical policy applications 2.
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Robert Hall on the Evolution of Macroeconomic Models:
- Hall emphasizes the consensus among macroeconomists regarding government expenditure's significant role in GDP, though debates persist on the exact mechanisms. He notes the integration of rational expectations and the diminishing distinction between Keynesian and monetarist schools in contemporary macroeconomic thought 3.
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Ricardo Reis on the Keynesian-Monetarist Debate:
- Reis highlights that neo-Keynesian and new monetarist models both operate on the premise that monetary policy can have real economic effects, albeit differing in how effective these effects are. He suggests that new monetarist models are a subset under the broader New Keynesian framework 4.
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Greg Mankiw on Keynesian Economics Today:
- Mankiw discusses the resilience of Keynesian economics within academic curricula, reinforced by modern research. Despite past criticisms, the ISLM model remains influential in economic research, emphasizing fiscal policy's roles such as running deficits to stimulate the economy. He notes a significant resurgence of interest in Keynesian models over recent decades 5.
These insights highlight the adaptability and continued relevance of New Keynesian models in explaining economic phenomena and guiding monetary and fiscal policy.
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