neokeynesian

Neokeynesian economics is a school of macroeconomic thought that emerged in the mid-20th century, synthesizing Keynesian principles with neoclassical microeconomic foundations. It sought to reconcile the perceived instability of Keynesian models with the rigorous analytical framework of neoclassical economics. Key figures associated with this development include John Hicks, Franco Modigliani, and Paul Samuelson.

Neokeynesians generally accept the core Keynesian idea that prices and wages can be sticky, meaning they do not adjust instantaneously to changes in supply and demand. This stickiness can lead to market inefficiencies and involuntary unemployment, particularly in the short run. However, unlike earlier Keynesians, Neokeynesians often model these rigidities using microeconomic principles, such as explicit assumptions about imperfect competition or information asymmetries.

They also tend to believe that markets are generally efficient in the long run, and that fully flexible prices and wages would eventually lead to equilibrium. Therefore, Neokeynesian policy recommendations often focus on managing aggregate demand through fiscal and monetary policy to stabilize the economy during recessions, but they generally do not advocate for continuous or extensive government intervention. The Neokeynesian synthesis provided a framework for much of modern macroeconomic analysis and policy discussions.