Testing Keynesian Unemployment Theory against Structuralist Theory: Global Evidence of the Past Two Decades

  • Edmund S. Phelps
Part of the International Economic Association Series book series (IEA)

Abstract

The theory of unemployment accorded the status of orthodoxy in Western macroeconomics — the theory expounded in the textbooks — is, in a word, Keynesian. It derives from (among others) Keynes, Hicks, Tobin, Patinkin, the ‘natural rate’, and either a ‘new microeconomics’ apparatus without rational expectations or a New Keynesian apparatus compatible with rational expectations in order to generate inappropriate responses or inertia in nominal wages or prices. Some would allow hysteresis making the natural rate of unemployment ‘path-dependent’. The monetarists use the same theory, though with different emphases, and in a sense the New Classical theory is a special (and more fully elaborated) case of it. So entrenched has it become in conventional economic thinking that people who know no economics at all have learned, like Samuelson’s parrot, to say ‘weaker demand’ or ‘supply shock’ with every slump no matter how prolonged it is or how obscure its source or sources.

Keywords

Depression Europe Income Expense Rium 

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Copyright information

© International Economic Association 1991

Authors and Affiliations

  • Edmund S. Phelps
    • 1
  1. 1.Columbia UniversityUSA

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