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Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long‐Term Equilibrium

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  • Gérard Duménil
  • Dominique Lévy

Abstract

We analyse the relationship between the Keynesian (post‐Keynesian, Kaleckian) and classical perspectives, emphasizing the distinction between two time frames, short term and long term. A model is presented in which the traverse to a long‐term classical equilibrium, with prices of production, is obtained as a sequence of short‐term Keynesian equilibria (in which outputs are adjusted to demands). In the short term, prices and capital stocks are constant; they are only adjusted in the long term. Prices respond to disequilibria concerning capacity utilization rates. Investment is subject to a financing constraint, in which the provision of loans by the banking system is involved. Loans are modified in response to inflation (monetary policy).

Suggested Citation

  • Gérard Duménil & Dominique Lévy, 1999. "Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long‐Term Equilibrium," Manchester School, University of Manchester, vol. 67(6), pages 684-716, December.
    • Handle: RePEc:bla:manchs:v:67:y:1999:i:6:p:684-716
    DOI: 10.1111/1467-9957.00175
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