1988 Articles

Examining Alternative Macroeconomic Theories

Stiglitz, Joseph E.; Greenwald, Bruce C.

This paper introduces a simple variant of the new Keynesian approach to describing macroeconomic behavior that is based on informational imperfections in financial and labor markets. The basic characteristics of that model are contrasted with the characteristics of a traditional wage-rigidity based macromodel and a new classical model in which macroeconomic disturbances result from productivity shocks. The separate implications of these models are then compared to the broad empirical characteristics of business cycles in several postwar industrial economies (including the United States, United Kingdom, West Germany, Australia, and Japan) and to aspects of the prewar behavior of these economies.