read enough posts and u realize
the guy likes diving
under the surface
over at the NK olympic pool
in particular
just a couple days ago
the june bug macronomist
came up with this bag of tainted pearls :
"If I had to
characterise New Keynesian theory by one thing, it would be the analysis of
economies where the real rate of interest ( RIR )
differed from the ‘natural’ real rate.
"
definition of natural RIR :
"The natural rate is the real interest rate that would obtain if output was
determined by an RBC model "
.
narrative
start with a " ‘wrong’ real interest rate"
then
" use an imperfect competition formalism
voila "New Keynesian analysis "
which
"determines output and perhaps employment
only from the demand side"
ie "the determination of effective demand becomes
critical to the model"
which implies this sound gadget NK rigorously demonstrates in its "world"
"if real
interest rates are at their natural level, we do not need to think about demand
when calculating output."
" it's the job of monetary policy to try
and get the economy back to this natural real interest rate. "
comes the pull quote ...the one that puts all the money
our NK-niks have
right on the line:
"getting to the natural real rate is " why, ZLB problems apart,
NK ers say " it is monetary rather than fiscal
policy that is the primary stabilising policy. "
" In the New Keynesian model, business cycles are
generally an intertemporal mismatch between demand and supply (unless, for some
reason, we get stuck with demand deficiency)."
and we often do get so "stuck "
" What is the relevant price that
influences this intertemporal allocation of demand?"
"the real interest rate,
not the price or wage level. "
"if we think about New Keynesian
economics as being about some price being wrong, that price is the real interest
rate."
.
this all
" suggests why monetary rather than fiscal policy is
the policy of choice for stabilisation. "
whereas in IS-LM
"...both fiscal and monetary policies look as good as each
other ..."
bingo a better yet pull quote
savour that last bit call it hicks instrument neutrality
now ask why might corporate earth prefer a monetary based macronautics ?
yup.... see kalecki
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reification alert !
remember regardless which model you are viewing
"its only a gadget ...its only a gadget "
