Publication: The modern view of macroeconomics : some critical reflections
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2002
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Facultad de Ciencias Económicas y Empresariales. Decanato
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Romer has proposed an alternative macroeconomic framework, i.e., the IS-MP-IA model. Its proponents claim that it constitutes a ‘modern’ view of macroeconomics. We show that the new framework is closely attached to the neoclassical synthesis and, in addition, fails to take account of: (i) the recent empirical evidence on the short-run output-inflation trade-off, (ii) the recent work and evidence on the interdependence of aggregate demand and supply, (iii) the limits of monetary policy and (iv) the consequences for demand-management policy of (i), (ii) and (iii). Once all these aspects are incorporated, we have that short-run stabilization policy is non-neutral in the long run, loanable funds theory becomes irrelevant and aggregate demand becomes the crucial exogenous variable in the short run and, perhaps, also in the long run.
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Códogos JEL: A22, E10, E50, E60
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