New Keynesian Theory Label

by Himfr Paul - Date: 2010-11-17 - Word Count: 749 Share This!

2010 winner of the Nobel Prize in Economics three theories have been labeled as "New Keynesian" label, and the new Keynesian help to resolve the United States, "high unemployment dilemma," such as exchange rate policy, the U.S. government is to give Unemployment opened the wrong prescription. China is concerned, up to the "growth first" strategy to "give priority to employment growth," the development of strategic change.

The global financial crisis (economic crisis) is not only the economic crisis also led to the crisis of mainstream economics. Direct manifestation of this crisis is that it seemed so in the face of crisis, the loss and helplessness, not only did not predict its arrival, the arrival of the crisis response Shiyou no real recipe. In view of the global economy at a crossroads, people hope the economists won the Nobel Prize for Economics theory can help policy makers out of the economic difficulties.

The current long-term high unemployment rate is becoming one of the major developed economies, "chronic illness", the world experienced "jobless recovery" challenges. Western countries "jobless recovery" a direct result of consumer weakness, making the recovery of loss of an important growth engine.Christopher three labor market researchers, award-winning policy-makers trying to highlight all the possible "economic policies affect the employment market," the urgent and tangles, but they can really save the deep quagmire of the U.S. job market? Solve the employment problem in China how the development of ideas should be taken?

Classical theory suggests that the labor market, labor supply and demand in the information complete, frictionless operation of the market environment. However, the reality of the labor market is imperfect information, there is friction. Labor market information is not complete and friction, is the labor supply and demand information between the two parties to collect transaction costs and the resulting delays and delays. Therefore, the information is not complete, there is friction in the market environment, labor market theory to solve the central problem is to find the labor supply and demand sides to meet the interests of individual rationality and compatibility of the transaction model. Diamond and other "search theory" gives the answer, while the theoretical model in the Diamond, the Government is always in the position of a configuration policy-makers, at a fixed cycle, the Government's role will be to deploy the two sides of supply and demand play a greater role in the shift. Therefore, the theory of the three scholars have been labeled the "new Keynesian" label.

From the theoretical development is concerned, follow the Keynesian New Keynesian tradition, while emphasizing the causes of market failure of the micro. The basic theoretical assumption: non-market clearing and maximize the economic interests of the parties and rational expectations.

First, non-market clearing, mainly from the new Keynesian sticky wages and prices to be explained. Corresponding to the various shocks from the demand, the relatively slow adjustment of wages and prices, making the economy back on the actual output is equal to the normal state of production requires a long process, which markets non-equilibrium.

As for the wage and price stickiness, the new Keynesian theory from the menu costs, staggered price and staggered wage adjustments to adjust theory of imperfect competition and market coordination theory, labor markets and credit rationing on the different aspects of an explanation. For example, the menu of the view that the reason why the slow price adjustment due to price adjustments and cost; staggered wage adjustment and staggered price adjustment of the parties that the economy staggered price adjustment time is carried out. Of imperfect competition that is not fully competitive market the price changes on aggregate demand is not sensitive.

On the basis of price and wage stickiness, the new Keynesian aggregate supply curve with the short-term fluctuations in the economy are explained, the overall price level rises, manufacturers of production can be adjusted as soon as possible, and because the role of wage stickiness, as expected pricing, labor supply can not be adjusted quickly, and therefore the original Keynesian theory, the new Keynesian short-term supply curve to the right tilt. A tilt to the right corresponds to the total supply curve, changes in aggregate demand affect not only the price level, but also affect the actual output.

Based on the above analysis, a new short-term Keynesian aggregate demand not only that the management policy is still valid, and the Government in the coordination of market failure to play a greater role to aggregate demand shocks in the economy has been rapidly after the return to equilibrium employment .

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