Will the New Keynesian Macroeconomics Resurrect the IS-LM Model - Journal of Economic PerspectivesVolume 7 Number 1Winter 1993Pages 6782 Will the

Will the New Keynesian Macroeconomics Resurrect the IS-LM Model

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JournalofEconomicPerspectivesVolume7,Number1Winter193Pages6782WiltheNewKeynesianMacroeconomicsResurecttheIS-LMModel?RobertG.KingSucesfulmarketingtypicalymakesaproductnewandoldatthesametime.Forexample,manynewautomobilemodelsarepresentedtoconsumerseveryyear.Witheachnewmodel,themanufacturersekstoholdontotheexistingmarketandtoatractnewbuyers.Atypicaladvertisingcampaignthusstresesthattraditionalfeatureshavebenkept,withexcitingnewonesaded.Butthestresvariesacrosmarketgroups:traditionalbuyersgetaheavyemphasisonmaintainedfeatures,whiletheprospectivenewpurchasersgetapictureofavirtualynewproduct.Sotoitiswitheconomics.Muchrecentatentionisatachedtothedevelopmentofa"NewKeynesianMacroeconomics."1InthetwinvolumesofthistitleeditedbyN.GregoryMankiwandDavidRomer(191),theproductisaseductiveone.Thereaderispresentedwithawidearayofshortpapersdevelopingparticularaspectsofagregatesuply;forexample,onthepricingoffinalproductsandontheoperationoflabormarkets.Microeconomicsisemphasizedheavily,incontrasttotraditional1960sKeynesianwork,althoughsuportingempiricalevidencereceivesmuchlesstresthanitdidintheearliervintage.Takentogether,thesepapersareviewedasrefuting"thenewClasicalargumentthattheKeynesianasumptionofnominalrigiditieswas1Inaditiontothepapersinthissymposium,thereareanumberofusefulrecentsurveys.AprominentnewClasicaleconomist,RobertBaro(1989),isskepticalthatthenewKeynesianmacroeconomicshasmuchnewtocontributeaboutwageorpricestickines.AtraditionalKeyne-sian,RobertGordon(190),arguesthatthenewKeynesianmacroeconomicsprovidesausefulgeneralframeworkforthesuplyside,butnedstomakemorecontactwithspecificempiricalpuzles.OthernoteworthydescriptionsofthenewKeynesianprogramarecontainedinthepopularwritingsofMankiw(forexample,190).RobertG.KingisProfesorofEconomics,UniversityofRochester,Rochester,NewYork.
68 Journal of Economic Perspectivesincapable of being given theoretical foundations" (Mankiw and Romer, 1991,p.15).

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