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Are Dynamic Stochastic Disequilibrium models Keynesian or neoclassical?
- Source :
-
Structural Change & Economic Dynamics . Mar2017, Vol. 40, p46-63. 18p. - Publication Year :
- 2017
-
Abstract
- Dynamic Stochastic Disequilibrium (DSDE) models share the micro-foundations of Dynamic Stochastic General Equilibrium (DSGE) models based on inter-temporal optimization and rational expectations. Yet, it features the principle of effective demand which is at the core of Traditional Post-Keynesian (TPK) models and follows from the perception that the wage inflation is a policy variable rather than a labor-market clearing variable. In order to locate the DSDE model among the traditions of economic thought, the paper compares DSDE first-order conditions of optimal behavior with TPK rule-of-thumb behavior. It further compares the economic propagation of a DSDE model to those of a DSGE and TPK model as well as a Synthetic Neoclassical (SNC) model which features TPK behavioral assumptions and labor-market clearing. We arrive at two core conclusions: First, apart from assumptions regarding expectation formation, orthodox micro-foundation is, to a considerable extent, consistent with the behavioral hypotheses underlying TPK models. Second, the economy characterized by the DSDE model is essentially post-Keynesian rather than neoclassical because it features the principle of effective demand. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 0954349X
- Volume :
- 40
- Database :
- Academic Search Index
- Journal :
- Structural Change & Economic Dynamics
- Publication Type :
- Academic Journal
- Accession number :
- 121357060
- Full Text :
- https://doi.org/10.1016/j.strueco.2016.11.004