A New Micro-Foundation for Keynesian Economics

Author Name YOSHIKAWA Hiroshi  (Faculty Fellow, RIETI)
Creation Date/NO. April 2012 12-E-025
Research Project Issues Faced by Japan's Economy and Economic Policy: Demand, productivity, and sustained growth
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Standard micro-founded macroeconomics starts with optimization exercises to derive the precise behavior of the representative agent and regards the macroeconomy as a homothetic enlargement of a micro agent. This paper takes a different approach and presents a new micro-foundation for Keynesian economics. The key concept is stochastic macro-equilibrium, which is a natural extension of the labor search theory.