neokeynesiani

Neokeynesian economics is a school of macroeconomic thought that emerged in the mid-20th century, seeking to reconcile the insights of Keynesian economics with the principles of neoclassical economics. Key figures associated with this synthesis include John Hicks, Franco Modigliani, and James Tobin. Neokeynesians generally accept the neoclassical notion that markets tend towards equilibrium but argue that frictions, such as sticky wages and prices, prevent this equilibrium from being reached quickly in the short to medium term. This stickiness, they contend, can lead to involuntary unemployment and underutilization of resources, creating a role for government intervention.

Unlike earlier Keynesians, neokeynesians often employ formal mathematical models and microeconomic foundations to justify their macroeconomic conclusions. They emphasize the importance of aggregate demand in determining output and employment in the short run, but acknowledge that supply-side factors become more significant in the long run. Policy recommendations typically include using fiscal and monetary policy to stabilize the business cycle, aiming to smooth out fluctuations in economic activity and reduce unemployment. While accepting that markets are generally efficient, neokeynesians believe that information asymmetries, externalities, and the aforementioned rigidities can justify government intervention to improve overall economic outcomes.