Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-19T00:31:14.533Z Has data issue: false hasContentIssue false
  • English
  • Français

Macroeconomics for the 21st Century: Full Employment as a Policy Goal

Published online by Cambridge University Press:  26 March 2020

Roger E.A. Farmer
Roger E.A. Farmer*
Affiliation:
University of California Los Angeles, National Bureau of Economic Research, and Centre for Economic Policy Research
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper describes research that integrates Keynesian and Walrasian economics in a new way. The author develops a model in which high unemployment can persist and any unemployment rate can occur as an equilibrium. Equilibrium is selected by the self-fulfilling beliefs of asset market participants. Using this new framework, the author argues that fiscal policy is not the best solution to the problem of restoring full employment. A policy of asset market management, similar to quantitative easing, is put forward as a more effective approach.

Keywords

UnemploymentKeynesian economicsquantitative easingfinancial crisisE2E24E40E50
Type
Research Articles
Information
National Institute Economic Review , Volume 211 , January 2010 , pp. R45 - R50
Copyright
Copyright © 2010 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

∗

This paper summarises work presented at the 6th Euroframe Conference on Economic Policy Issues in the European Union, 'Causes and consequences of the current financial crisis: what lessons for European Union countries?' held on 12 June 2009 at the British Academy. I would like to thank Ray Barrell and Catherine Mathieu for inviting me to present my work, the Economic and Social Research Council for their sponsorship and participants at the conference for their comments. I also thank the National Science Foundation for their support of this research under grant SBR 0720839.

References

Calvo, G. (1983), ‘Staggered prices in a utility maximizing model’, Journal of Monetary Economics, 12, pp. 383–98.CrossRefGoogle Scholar
Clarida, R., Gali, J. and Gertler, M. (1999), ‘The science of monetary policy: a new Keynesian perspective’, Journal of Economic Literature, 37, pp. 1661–707.CrossRefGoogle Scholar
Farmer, R.E.A. (2009a), ‘Confidence, crashes and animal spirits’, NBER Working Paper No.14846.CrossRefGoogle Scholar
Farmer, R.E.A. (2009b), ‘Fiscal policy can reduce unemployment: but there is a better alternative’, CEPR Discussion paper No. 7526.CrossRefGoogle Scholar
Farmer, R.E.A. (2010a), Expectations Employment and Prices, Oxford, Oxford University Press.Google Scholar
Farmer, R.E.A. (2010b), How the Economy Works: Confidence, Crashes and Self- Fulfilling Prophecies, Oxford, Oxford University Press.Google Scholar
Friedman, M. (1957), A Theory of the Consumption Function, Princeton University Press.CrossRefGoogle Scholar
Friedman, M. (1968), ‘The role of monetary policy’, American Economic Review, 58, pp. 1–17.Google Scholar
Hansen, A. (1936), ‘Mr. Keynes on underemployment equilibrium’, Journal of Political Economy, 44, pp. 667–86.CrossRefGoogle Scholar
Hicks, J. (1937), ‘Mr. Keynes and the classics: a suggested interpretation’, Econometrica, 5, pp. 147–59.CrossRefGoogle Scholar
Keynes, J.M. (1936), The General Theory of Employment Interest and Money, London, Macmillan.Google Scholar
Krugman, P. (2009), ‘Economists, ideology and stimulus’, The Conscience of a Liberal: New York Times Blog, 19 January.Google Scholar
Kuttner, K.N. (2006), ‘Can central banks target bond prices?’, NBER Working Paper No. 12454.Google Scholar
Patinkin, D. (1989), Money Interest and Prices (3rd edition), Cambridge MA, The MIT Press.Google Scholar
Pissarides, C. (2000), Equilibrium Unemployment Theory, Cambridge MA, The MIT Press.Google Scholar
Robinson, J. (1965), Collected Economic Papers, Oxford, Blackwell.Google Scholar
Rogerson, R., Shimer, R. and Wright, R. (2005), ‘Search theoretic models of the labour market: a survey’, Journal of Economic Literature, 43, pp. 959–88.CrossRefGoogle Scholar
Samuelson, P.A. (1955), Economics: An Introductory Analysis (3rd edition), McGraw Hill.Google Scholar