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Wynne Godley, Anwar M. Shaikh (2002) An Important Inconsistency at the Heart of the Standard Macroeconomic Model”, Journal of Post Keynesian Economics, vol. 24, n. 3, pp. 423-443

Url: http://homepage.newschool.edu/~AShaikh/An%20Important%20Inconsistency%20at%20the%20Heart%20of%20the%20Standard%20Macroeconomic%20Model.pdf

Abstract: The neoclassical macroeconomic dichotomy between real and nominal variables is shown to be generally false, even within the standard structure of the model. The model implicitly assumes that disbursements via interest payments on bonds somehow ensure that all profits are disbursed. But the two are generally different. Forcing them to match renders the model mathematically inconsistent. Alternately, distinguishing the two rectifies the inconsistency but destroys the dichotomy between real and nominal variables and dramatically alter the model’s outcomes. One striking consequence is that a rise in the money supply can lead to a fall in prices.

Keywords: flow of funds, macroeconomic models, monetarism, neoclassical economics

November 13, 2010 | Comments Closed