Economics, Econometrics and Finance
4 years ago

Keynesian Economics Vindicated: Stagflation Not a Deal Breaker!

MPRA Paper
Stagflation and the Rejection of Keynesian Economics: A Case of Naive Falsification
Jesse Aaron Zinn

Paper Summary

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The idea that stagflation in the 1970s disproved Keynesian economics is not accurate. Keynesian models could explain stagflation by considering inflation expectations. Keynesian economics evolved to incorporate new ideas and research methods, making stagflation a logical outcome of its assumptions. In contrast, new classical economics did not show similar progress. Overall, the claim that stagflation falsified Keynesian economics is not supported.