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New Keynesian Economics in Perspective*David Colander, Middlebury College In the 1990s the term, New Keynesian macroeconomics, is being used with increasing frequency, leading some economists to question whether their profession has gone classification crazy. At a minimum it has left many in the profession wondering what the term, New Keynesian, as opposed to neoKeynesian or Keynesian, means. To some extent, I agree with this view; the way many economists, especially Mankiw and Romer (1991), have used the term New Keynesian is confusing and does not help clarify important distinctions among macroeconomists. New terms should clear up confusion, not add to it; they should direct nonspecialists to the central issues at debate. But initial terminological confusion can often lead to clarification, and can be part of the process by which our understanding of the issues advances. New Classicalis such a term; it was added to economists’ vocabulary in the 1980s because the work it described made a fundamental shift away from neoclassical thinking. The term made clear the major shift in thinking that was inherent in New Classical work. Elsewhere (Colander 1992a, b) I have criticized Mankiw and Romer’s use of the term, New Keynesian, arguing that it is subject to a similar type of criticism as that made by Frank Knight of Keynes. Knight argued that some things that Keynes said were new and some things that he said were true, but, unfortunately, the things that were new weren’t true, and the things that were true weren’t new. Similarly, I argued that while some of what Mankiw and Romer call New Keynesian is new, and some of it is Keynesian; unfortunately the things that are new aren't Keynesian, and the things that are Keynesian aren't new.1In those articles I offered an alternative definition of New Keynesian economics that I claimed was worth the trouble of learning and should enter economists’ vocabulary for the same reason that the term New Classical *I would like to thank Hans van Ees, Harry Garetsen and HaroldHochman for helpful comments on earlier drafts 1Mankiw is not a strong advocate of his definition; in private correspondence to me he stated that he is now somewhat disparaging of all nomenclature issues, including his use of the term New Keynesian. In his recent paper “The Reincarnation of Keynesian Economics” (Mankiw 1992) he writes that “With new Keynesians looking so much like old classicals, perhaps we could conclude that the term ‘Keynesian’ has out-lived its usefulness.”
New Keynesian Economics In Perspective2 economics entered into economists vocabulary.2The emerging New Keynesian work requires a new label because it makes a fundamental shift away from neoKeynesian thinking. The emerging work I called New Keynesian is work in which the central NeoKeynesian/Neoclassical issue of wage/price flexibility is almost irrelevant; instead in New Keynesian work institutional coordination failures, macroexternalities, and interdependencies