Back to Keynes?

After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether the New Keynesian Phillips curve and the New Neoclassical Synthesis capture the quintessential features stressed by J.M. Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies of the New Neoclassical Synthesis, however, are its inability to predict a pro-cyclical real wage in the face of demand shocks and the absence of inventories, credit constraints and bankruptcies in explaining the business cycle. Furthermore, it fails to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured. (JEL E 12, E 32, E 63)