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ResearchPaper
2009

The new Keynesian microfoundation of macroeconomics

Abstract (English)

New Keynesian Macroeconomics (NKM) obeys to the new dogma that macroeconomics should be firmly grounded in First Principles of micro theory. Households are assumed to run an intertemporal optimization calculus with respect to leisure and consumption by making use of perfect financial markets. The supply side is organized so that full employment prevails. Macroeconomic coordination problems between saving and investment are absent. In order to make model predictions more compatible with empirical facts, NKM chooses "ad hoc" microfoundations: utility functions and market structures are designed arbitrarily to allow for persistence of macro variables. NKM's reduced hybrid macro model, with lags and expectational leads, is a useful "work horse", compatible with various micro reasoning. However, NKM's insistence on the representative agent obstructs an understanding of heterogeneous beliefs and learning.

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Publication series

Hohenheimer Diskussionsbeiträge; 317

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Faculty
Faculty of Business, Economics and Social Sciences
Institute
Institut für Volkswirtschaftslehre (bis 2010)

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Language
English

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Classification (DDC)
330 Economics

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BibTeX

@techreport{Spahn2009, url = {https://hohpublica.uni-hohenheim.de/handle/123456789/5274}, author = {Spahn, Heinz-Peter}, title = {The new Keynesian microfoundation of macroeconomics}, year = {2009}, school = {Universität Hohenheim}, series = {Hohenheimer Diskussionsbeiträge}, }