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The Classics, Keynes, and the Keynesians: A Unified Formalization

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  • Lucas Llach

    (Universidad Torcuato Di Tella)

  • Pablo Schiaffino

    (Universidad Torcuato Di Tella
    Universidad de Palermo)

Abstract

We sketch a simple microfounded model that tries to capture the basic results of different macroeconomic schools by changing the values or behaviors of some parameter(s). The model has four different cases, which we label “Classical” (flexible prices and wages guaranteeing full employment), “Keynes’ Liquidity Trap” (a shortage of demand incapable of being corrected even with wage or price deflation), “Sticky-Price Keynesian,” and “Sticky-Wage Keynesian.” We associate each of these instances of our model with “textbook cases,” respectively: the labor-credit-money markets of the Classical case; Keynes–Krugman liquidity trap; the IS–LM model; and the AD–AS model.

Suggested Citation

  • Lucas Llach & Pablo Schiaffino, 2017. "The Classics, Keynes, and the Keynesians: A Unified Formalization," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(3), pages 530-551, June.
    • Handle: RePEc:pal:easeco:v:43:y:2017:i:3:d:10.1057_eej.2015.56
    DOI: 10.1057/eej.2015.56
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    Keynes; The Classics; model;
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