NEW KEYNESIAN
1. Involuntary employment
New Keynesian use rational expectations and assume
that the cause of involuntary unemployment is sticky
prices and wages
2. Neutrality in money
New Keynesian assume neutral money in the long run
and Say's law as well.
New-Keynesians money has short run effects because
prices are sticky. On the quantity equation MV=PY,
M has an effect on Y because P doesn’t react in the
short run.
POST KEYNESIAN
1. Involuntary employment
Emphasis Keynes' principle of effective demand and
the fundamental role that liquidity preference plays in
market economies. Post Keynesian emphasize liquidity
preference and its role in causing involuntary
unemployment.
2. Neutrality in money
Believe that money is not neutral. They rely on a
monetary production economy, where entrepreneurs
have to settle production projects that they judge
profitable.
To achieve these projects, they often have to borrow
money from banks in order to fund in advance the
required capital goods
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 NEW KEYNESIAN
3. Features
New Keynesians is essentially a mix of New
Classical and New Keynesian Theory. Emerged by
providing a more consistent neoclassical
microeconomic foundation for Keynesian
macroeconomics.
4. Policy Implementation
Believe that monetary intervention is the main
instrument of economic policy. Some have
recognized the usefulness of fiscal policy, but
others are actually sceptical about fiscal
intervention ( Snowdon and Vane 2005 : 364)
POST KEYNESIAN
3. Features
True Heirs to Keynes. The forebears of the Post
Keynesian school were the Cambride associates
and students of Keynes who rejected the
neoclassical synthesis. Ex : Joan Robinson ( 1903-
1983), Richard F. Kahn ( 1905-1989) , Nicholas
Kaldor ( 1908-1986)
4. Policy Implementation
Instrument of the Post Keynesian monetary policy
rest on 3 pillars : interest rate, debt management
and regulation.
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 PRICE RIGIDITY
NEW KEYNESIAN POST KEYNESIAN
1. The genesis of New Keynesian economics 1. Many firms quite deliberately set prices.
is an attempt to establish empirical support Firms act to ensure their survival and grow
for price stickiness. their business and market share.
2. New Keynesian proposed various 2. The most important cause of price
explanations of real world price stickiness , adjustments are changes in the costs of
which is : factor inputs and wages. Thus, the pricing
1. Menu costs policies of firms are quite conscious and
2. Implicit contracts deliberate acts of price administration and
3. Nominal contracts
4. Coordination failure
setting > causing price stickiness in market.
5. Cost-based pricing
6. Constant marginal cost
7. Non-price competition
8. Pricing threshold
9. Link between quality and price
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3. New keynesian believes that, if only prices were 3. Post Keynesian , following Keynes himself, reject
perfectly flexible, then economies would adjust the view that perfectly flexible wages, prices and
rapidly to full employment. perfect competition would lead to full employment
equilibrium.

-Even if there were perfectly flexible wages and

prices, there could be failures of aggregate demand (
Davidson 1992)

4. Therefore, price rigidity is not the fundamental

cause of demand affecting output. ( Melmies 2012 :
456)

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A Different view About PRICE STICKINESS
1. One question that has to be addressed to New-Keynesian
Economics: why should price stickiness be only an undesired feature
for firms?

2. New keynesian actually conceive the empirical results of surveys as

the consequence of a constraint which prevents firms from changing
their prices. When there is an increase in demand, the firm would like
to change its price but doesn’t because of costs and constraints.
In fact some New-Keynesian economists still do as if all markets were
organized in a Walrasian way.

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3. While for Post Keynesian, firms desire stable prices and
those firms don’t react to demand just because they don’t
want to. In a non-ergodic world with non-walrasian markets,
firms have to definepolicies, such as investment policies,
employment policies and pricing policies.
4.Policies are the answer to uncertainty. We are thus
endorsing Heiner’s view that fundamental uncertainty leads
people to rely on stabilizing behaviours and stabilizing
conventions and institutions
(Heiner, 1983).
5. Firms have to post a price (administer a price as used to say
Gardiner Means).To post a price they add a profit margin to a
measure of costs.
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