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A Critical Review of the Rationale Approach to the Microfoundation of Post-Keynesian Theory

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  • Christian Schoder

Abstract

While modeling macroeconomic interactions, post-Keynesians propose rationales to verbally motivate the choice of behavioral equations. This informal approach to microfoundation results in inconsistencies and fuzzy arguments. The rationales for different behavioral rules are mutually inconsistent, require strong and nontransparent assumptions, or refer to highly endogenous variables that are not part of the model. The postulated behavioral rules are invariant to endogenous changes in the microenvironment, whereas the rationales imply that they adjust endogenously. The prevailing assumption of purely backward-looking expectations is neither theoretically nor empirically satisfying. The article concludes that revisiting the issue of microfoundation within the post-Keynesian framework may be a rewarding line of research. Furthermore, post-Keynesians should be open to various microfoundations as long as models feature the core of post-Keynesian theory—the principle of effective demand.

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  • Christian Schoder, 2017. "A Critical Review of the Rationale Approach to the Microfoundation of Post-Keynesian Theory," Review of Political Economy, Taylor & Francis Journals, vol. 29(2), pages 171-189, April.
    • Handle: RePEc:taf:revpoe:v:29:y:2017:i:2:p:171-189
    DOI: 10.1080/09538259.2017.1315932
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    References listed on IDEAS

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    1. J. E. King, 2012. "The Microfoundations Delusion," Books, Edward Elgar Publishing, number 14065.
    2. Paul Davidson, 2011. "Post Keynesian Macroeconomic Theory, Second Edition," Books, Edward Elgar Publishing, number 14290.
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    Cited by:

    1. Roberto Veneziani & Luca Zamparelli & Corrado Di Guilmi, 2017. "The Agent-Based Approach To Post Keynesian Macro-Modeling," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1183-1203, December.
    2. Christian Schoder, 2017. "Estimating Keynesian models of business fluctuations using Bayesian Maximum Likelihood," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(4), pages 586–630-5, October.

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