The Two Triangles: What Did Wicksell and Keynes Know About Macroeconomics that Modern Economists Do Not (Consider)?

University of Trento Department of Economics Discussion Paper No. 6/2009

31 Pages Posted: 20 Dec 2009

See all articles by Ronny Mazzocchi

Ronny Mazzocchi

European Parliament

Roberto Tamborini

University of Trento - Department of Economics and Management

Hans‐Michael Trautwein

Carl von Ossietzky Universität Oldenburg; ZenTra - Center for Transnational Studies

Date Written: December 19, 2009

Abstract

The current consensus in macroeconomics, as represented by the New Neoclassical Synthesis, is to work within frameworks that combine intertemporal optimization, imperfect competition and sticky prices. We contrast this “NNS triangle” with a model in the spirit of Wicksell and Keynes that sets the focus on interest-rate misalignments as problems of intertemporal coordination of consumption and production plans in imperfect capital markets. We show that, with minimal deviations from the standard perfect competition model, a model structure can be derived that looks similar to the NNS triangle, but yields substantially different conclusions with regard to the dynamics of inflation and output gaps and to the design of the appropriate rule for monetary policy.

Suggested Citation

Mazzocchi, Ronny and Tamborini, Roberto and Trautwein, Hans-Michael and Trautwein, Hans-Michael, The Two Triangles: What Did Wicksell and Keynes Know About Macroeconomics that Modern Economists Do Not (Consider)? (December 19, 2009). University of Trento Department of Economics Discussion Paper No. 6/2009 , Available at SSRN: https://ssrn.com/abstract=1525825 or http://dx.doi.org/10.2139/ssrn.1525825

Ronny Mazzocchi (Contact Author)

European Parliament ( email )

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Roberto Tamborini

University of Trento - Department of Economics and Management ( email )

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Trento, I-38100
Italy

Hans-Michael Trautwein

Carl von Ossietzky Universität Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

HOME PAGE: http://www.iw.uni-oldenburg.de/

ZenTra - Center for Transnational Studies ( email )

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Oldenburg, 26131
Germany

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