Working Paper BETA #2013-16

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Title : Mr. Keynes, the Classics and the new Keynesians: A suggested formalization.

Author(s) : Rodolphe Dos Santos Ferreira

Abstract : The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS-LM the generality of Keynes’s theory, clarifying the distinction of voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes’s relative wage hypothesis.

Key-words : Keynes’s model, involuntary unemployment, coordination failures, liquidity trap, relative wages.

JEL Classification : B22, E12