Template-Type: ReDIF-Paper 1.0
Author-Name: Roy H Grieve
Author-Name-First: Roy H
Author-Name-Last: Grieve
Author-Email: roygrieve@btinternet.com
Author-Workplace-Name: Department of Economics, University of Strathclyde
Title: Price flexibility and full employment:  barking up the wrong (neoclassical) tree
Abstract: This paper (a revised version of Strathclyde Paper 2004-07) questions the thesis (again in fashion) that price flexibility ensures full employment. (See most standard macro textbooks.) We make the point that explanation of unemployment in terms of price/wage stickiness typified much pre-Keynesian analysis, but not Keynes’s theory of involuntary unemployment. Under uncertainty - an essential aspect of the Keynes conception - no set of prices consistent with full employment may actually exist: if so, price inflexibility is not the critical obstacle to the attainment of full employment. Finally, with respect to current use of the AD/AS model, we note that once-rejected ideas have returned to the mainstream and that the strong arguments against attribution of necessarily beneficent effects to price and wage flexibility, which ought to be well-known, seem now to be forgotten. 
Length: 43 pages
Creation-Date: 2016-03
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/16.01.pdf
File-Format: Application/pdf
Number: 1601
Classification-JEL: B13, B22
Keywords: price adjustment - the rate of iterest, wages, the price level, classical and Keynesian perspectives, "counting equations and unknowns", the ADAS model
Handle: RePEc:str:wpaper:1601