New consensus macroeconomics and inflation targeting: Keynesian critique

Abstract

This paper is concerned with the New Consensus Macroeconomics in the case of an open economy. It outlines and explains briefly the main elements and way of thinking about the macroeconomy from the point of view of both its theoretical and policy dimensions. The main focus of this contribution, though, is the discussion of two important aspects closely related to the New Consensus Macroeconomics. These are: the absence of banks and monetary aggregates from this theoretical framework; and the use of the equilibrium real rate of interest by the same framework. The analysis is critical of the New Consensus Macroeconomics from a Keynesian perspective.