Difference between Old Keynesian and New Keynesian economics

Mostly Economics

Alex Cukierman of Tel Aviv University has written an excellent paper comparing Old Keynes thinking with the New Keynesian thinking. The paper is mainly on differences and similarities between Great Depression and Great Financial Crisis.

He begins the paper reviewing developments in macroeconomics from Keynes to Friedman to New Keynesian. He then compares the GD with GFC which is pretty much known by now.

There is a nice discussion on the policy lessons from the two episodes. He divides it into two:

  • Lessons learnt from GD which have been applied in GFC usefully – Monetary expansion, Fiscal Policy expansion, bank runs have disappeared, no to trade protectionism
  • Lessons from GFC which are Open Issues now- i-bank runs, leverage, too big to fail, risk mismanagement, liquidity trap revisited

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