ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Plurality in Teaching Macroeconomics

For economists, the Great Recession—the worst crisis the world has seen since the Great Depression of the 1930s—has highlighted the need for plurality in macroeconomics education. Ironically, however, there is a move towards greater insularity from alternative or contrasting points of view. Whereas, what is required for vibrant policymaking is an open-minded academic engagement between contesting viewpoints. In fact, there does not even exist a textbook that contrasts these contesting ideas in a tractable manner. This pedagogical paper is an attempt to plug that gap by presenting a comparative study across different traditions in macroeconomics in a unified framework, which can be developed into a semester-long intermediate-level course.

The New Keynesian Paradigm of Monetary Policy

While Keynes was sceptical of the efficacy of monetary policy , the current mainstream macroeconomic consensus , "New" Keynesian macroeconomics , accords it primacy in the process of maintaining both price and output stability. This consensus depends on three relationships: demand is inversely dependent on the interest rate, inflation is positively related to the output gap and the central bank can control interest rates to achieve an optimum combination of price and output. This paper presents a theoretical critique of this consensus from an "old" Keynesian perspective since Keynes had raised fundamental objections to each of the three relationships .
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