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Are Dynamic Stochastic Disequilibrium models Keynesian or neoclassical?

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  • Schoder, Christian
Abstract
Dynamic Stochastic Disequilibrium (DSDE) models share the micro-foundations of Dynamic Stochastic General Equilibrium (DSGE) models based on inter-temporal optimization and rational expectations. Yet, it features the principle of effective demand which is at the core of Traditional Post-Keynesian (TPK) models and follows from the perception that the wage inflation is a policy variable rather than a labor-market clearing variable. In order to locate the DSDE model among the traditions of economic thought, the paper compares DSDE first-order conditions of optimal behavior with TPK rule-of-thumb behavior. It further compares the economic propagation of a DSDE model to those of a DSGE and TPK model as well as a Synthetic Neoclassical (SNC) model which features TPK behavioral assumptions and labor-market clearing. We arrive at two core conclusions: First, apart from assumptions regarding expectation formation, orthodox micro-foundation is, to a considerable extent, consistent with the behavioral hypotheses underlying TPK models. Second, the economy characterized by the DSDE model is essentially post-Keynesian rather than neoclassical because it features the principle of effective demand.

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  • Schoder, Christian, 2017. "Are Dynamic Stochastic Disequilibrium models Keynesian or neoclassical?," Structural Change and Economic Dynamics, Elsevier, vol. 40(C), pages 46-63.
    • Handle: RePEc:eee:streco:v:40:y:2017:i:c:p:46-63
    DOI: 10.1016/j.strueco.2016.11.004
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    More about this item

    Keywords

    Dynamic Stochastic Disequilibrium; Dynamic Stochastic General Equilibrium; Post-Keynesian economics; Micro-foundations;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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