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Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework

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  • Koutsobinas, Theodore
Abstract
The utilization of a real-interest rate rule in Romer’s new-Keynesian IS-MP approach, which is consistent with new synthesis intertemporal baseline macroeconomic models, provides a contemporary alternative to the standard old-Keynesian IS-LM model and moves back the emphasis on general accounts of the macroeconomic process. Despite its merits, the IS-MP approach neglects completely the influence of the liquidity-preference typically associated in pure Keynes framework with the impact of confidence and animal spirits. In the present article, we show how the macroeconomic process takes place in terms of both a real interest-rate rule and liquidity-preference through the yield curve. This new synthesis, which is shown to be consistent with standard intertemporal analysis, proves to be useful not only because it maintains the illustrative advantages of either the old-Keynesian model with respect to liquidity-preference or the new-Keynesian model with respect to the interest-rate rule but also because it can be utilized as an effective communicative tool among different strands of economic thought.

Suggested Citation

  • Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43027
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    References listed on IDEAS

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    Cited by:

    1. Michelle Baddeley, 2014. "Rethinking the micro-foundations of macroeconomics: insights from behavioural economics," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(1), pages 99-112, April.

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    More about this item

    Keywords

    Liquidity-preference; animal spirits; behavioural macroeconomics; Keynes; IS-MP; intertemporal models; long-term interest rate; yield curve;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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