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Non-stabilizing Flexibility:From the Contributions By Keynes and Kalecki Towards a Post-Keynesian Approach

Sau, Lino (2006): Non-stabilizing Flexibility:From the Contributions By Keynes and Kalecki Towards a Post-Keynesian Approach. Published in: Studi Economici , Vol. 88, No. 1 (2006): pp. 79-92.

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Abstract

New and old mainstream macroeconomics argues that price flexibility stabilizes the economy. After a decline in aggregate demand, the more rapid prices fall, the faster output returns to its full employment level. The theoretical basis for this result is the well known "Pigou effect". However both Keynes and Kalecki rejected the thesis that price flexibility, in a demand-induced recession, can be stabilizistabilizing. This paper seeks to contrast Keynes's and Kalecki's ideas with the mainstream and discuss and alternative approach in the spirit of the post-keynesian's debt-deflation school.

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