Macroeconomics for the 21st Century: Full Employment as a Policy Goal

Abstract

This paper describes research that integrates Keynesian and Walrasian economics in a new way. The author develops a model in which high unemployment can persist and any unemployment rate can occur as an equilibrium. Equilibrium is selected by the self-fulfilling beliefs of asset market participants. Using this new framework, the author argues that fiscal policy is not the best solution to the problem of restoring full employment. A policy of asset market management, similar to quantitative easing, is put forward as a more effective approach.