Re: Colander and New Keynesian Economics

[FAC_BROSSER@xxxxxxxxxxxxxxxx]

Rejoinder to Paul Davidson:
     Any reader of this response should be duly informed that
it requires having read Paul's EEJ Fall '92 piece.
     First of all let me say that I have no doubt that you are
able to generate with a linear model an underemployment stable
equilibrium with money affecting production, arguably closer
to what Keynes himself would approve if he were around to make
such judgments.  However, I submit that the appropriate version
of NK is not contradictory with any of this, even if it is
unnecessarily "esoteric goop." (By the way, it was the 1984,
not the 1988, Democratic primaries in which Mondale asked Hart
"where's the beef"?)
     In your article your characterizations of NK are largely
drawn from Parkin, Gordon, and Mankiw, with some misrepresentations
of Colander thrown in for good measure.  The former three are
all of the Akerlof-Stiglitz "Weak NK" School that has already been
dismissed in this discussion for their inappropriate "ad hocness"
although I would note that wage and price rigidity are short-run
empirical realities and they may have useful explanations of that.
"Strong NK" explicitly allows such flexibility, that is not the
source of the difficulties.
     Furthermore, I note that Colander in his article in the same
issue of EEJ explicitly rejects the classical dichotomy (p. 440).
     The coordination failure is not that of hiring, it is of
investment.  This is absolutely Keynesian, and as near as I can
tell it is what is the bottom line for you as well.  My touchstone
remains the French approach, namely that of Grandmont.  He tracks
real money balances and generates multiple dynamic paths, many
chaotic, even when there is a single steady state equilibrium!
Again, this leads to an "expectations coordination problem" which
is fundamental.  Grandmont sees government intervention in the
response.
     Have a continuum of nice days!
Barkley Rosser
JMU