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The partial effectiveness of monetary policy: a keynesian critique of the new neoclassical synthesis model
[L’efficacité partielle de la politique monétaire : une critique keynésienne du modèle de la nouvelle synthèse néoclassique]

Author

Listed:
  • Nicolas Piluso

    (CERTOP - Centre d'Etude et de Recherche Travail Organisation Pouvoir - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique, IUT Paul Sabatier - Institut Universitaire de Technologie - Paul Sabatier - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse, UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse)

Abstract

Starting from the observation that monetary policy has difficulties in stimulating the economy in a recession by lowering interest rates, we propose a revision of the ISTRI model of Abraham-Frois (2003), or its more complete version proposed by Pollin (2003), which makes the DSGE model more easily accessible for students. We believe that these models are based on the unlikely assumption that monetary policy plays an effective stabilizing role. However, we identify situations in which this is not the case (downward rigidity of the interest rate and/or inelasticity of investment to the interest rate). In these cases, the shape of the aggregate demand curve is modified.By applying the postkeynesian critique that investment is only marginally sensitive to the interest rate in a DSGE-type model, we are led to invalidate many of its policy conclusions.

Suggested Citation

  • Nicolas Piluso, 2024. "The partial effectiveness of monetary policy: a keynesian critique of the new neoclassical synthesis model [L’efficacité partielle de la politique monétaire : une critique keynésienne du modèle de ," Post-Print hal-04646208, HAL.
    • Handle: RePEc:hal:journl:hal-04646208
    as

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