The modern view of macroeconomics : some critical reflections



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Palacio Vera, Alfonso (2002) The modern view of macroeconomics : some critical reflections. [ Documentos de Trabajo de la Facultad de Ciencias Económicas y Empresariales; nº 17, 2002, ISSN: 2255-5471 ]

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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.

Item Type:Working Paper or Technical Report
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Códogos JEL: A22, E10, E50, E60

Uncontrolled Keywords:Neutrality of money; NAIRU; Natural rate of interest; Aggregate demand.
Subjects:Social sciences > Economics > Macroeconomics
Series Name:Documentos de Trabajo de la Facultad de Ciencias Económicas y Empresariales
ID Code:6796
Deposited On:30 Nov 2007
Last Modified:02 Nov 2015 10:44

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