There are old and new Keynesian models. Austrian economists reject both on various grounds. Livio Stracca, not of the Austrian school, has a working paper in which he examines a new Keynesian model. Both models have an “IS” curve that has been taught to generations of students in macroeconomics courses. Stracca’s abstract says
“Overall, I conclude that the New Keynesian IS curve, at least in its most common formulations, is not structural and is overwhelmingly rejected by the data.”
“…the key forcing variable in such models, the ex ante real interest rate, is often statistically insignificant or wrongly signed…”
Mind you, as he says. “The New Keynesian IS curve is a mainstay of modern macroeconomic models.”
Other choice comments: “It is hard to see how these determinants [of the IS curve] may explain, by themselves, the global recession of 2009, not even close.” “…this paper therefore suggests that there may be something seriously wrong with the New Keynesian IS curve.”
He warns policy makers against using models that have the IS curve at their core.
That happens to be all Keynesian models, I’d say.
As I’ve said before, these guys running monetary policy literally do not know what they are doing, other than inflate and keep a bad system going until the final collapse while, in the mean time, inflicting untold damage on the economy by preventing it from growing as it should and could if it had a proper monetary system.
Output (production) is NOT a simple function of a couple of variables as these models say and as most simpleton macroeconomists think who employ these models. Consequently, their notions of creating demand by money-printing are also way off the mark.
ADDENDUM
I should add that where the NK models get it right is in saying that economic actors are forward-looking: “output and consumption are mainly forward looking, and this is a very robust feature of the data.”
Austrians have always said this. For example, Richard Ebeling: “He decides what past course of action is worth trying to continue or what might be a better course as he looks ahead.”
It would be hard to imagine any theory of economic man that did not represent him as looking forward and aiming at a purpose while forming expectations of the future. This is no great feather in the cap of the NK model.
1:24 pm on September 4, 2012
