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Cambridge Journal of Economics Advance Access published online on September 25, 2008
Cambridge Journal of Economics, doi:10.1093/cje/ben035
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Macroeconomics without the LM curve: an alternative view

Mark Setterfield*

* Trinity College, Hartford, CT, USA and Centre for Economic and Public Policy, Cambridge University, UK. Earlier versions of this paper were presented at the Ninth International Post Keynesian Conference, University of Missouri, Kansas City, September 2006 and at seminars at the New School for Social Research and the University of Massachusetts, Amherst

Address for correspondence: Mark Setterfield, Professor of Economics, Department of Economics, Trinity College, Hartford, CT 06106, USA; email: mark.setterfield{at}trincoll.edu

This paper develops a ‘fully articulated’ post-Keynesian alternative to the ‘New Consensus’ macroeconomic model, based on explicitly post-Keynesian hypotheses about the inflation process, the income-generating process and the appropriate conduct of monetary policy. The paper demonstrates how the equilibrium configuration of this model can be manipulated by non-monetary policy interventions, including fiscal policy and incomes policy. One (perhaps surprising) result that emerges from the analysis is that in the context of the proper policy environment, inflation targeting can have a positive impact on real economic performance.

Key Words: New consensus • Post-Keynesian economics • Monetary policy • Fiscal policy • Incomes policy • Inflation targeting • Stagnationism

JEL classifications: E12, E52, E62, E64

Manuscript received January 22, 2007; final version received June 19, 2008.


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