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A POST‐KEYNESIAN AMENDMENT TO THE NEW CONSENSUS ON MONETARY POLICY
Author(s) -
Lavoie Marc
Publication year - 2006
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2006.00238.x
Subject(s) - economics , monetary policy , new keynesian economics , inflation (cosmology) , keynesian economics , interest rate , fiscal policy , nominal interest rate , monetary economics , macroeconomics , doctrine , inflation targeting , real interest rate , law , political science , physics , theoretical physics
A common view is now pervasive in policy research at universities and central banks, which one could call the New Keynesian consensus, based on an endogenous money supply. This new consensus reproduces received wisdom: in the long run, expansionary fiscal policy leads to higher inflation rates and real interest rates, while more restrictive monetary policy only leads to lower inflation rates. The paper provides a simple four‐quadrant apparatus to represent the above, and it shows that simple modifications to the new consensus model are enough to radically modify received doctrine as to the likely effects of fiscal and monetary policies.