Paul krugman’s ‘liquidity trap’ and other misadventures with keynes

Abstract

In recent blog posts, Paul Krugman proposes a heuristic model to analyse the advanced country macroeconomic situation circa 2014. An earlier version focusing on Japan is much more formalized with the usual New Keynesian paraphernalia. Despite Krugman’s claims to the contrary, the analysis is not really Keynesian, at least in comparison to the General Theory or GT. It does hark back to the world of the turn-of-the-twentiethcentury Swedish economist Knut Wicksell and contemporaries and followers such as Irving Fisher, James Tobin, and Robert Mundell.