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Optimal stabilization policy: A comparison of an orthodox and a heterodox perspective

Petersson, Hanna LU and Grandin, Embla LU (2025) NEKN01 20251
Department of Economics
Abstract
This essay examines how the choice of theory and model affects the conclusions drawn regarding short run stabilization policy. This is done by comparing the ‘orthodox’ New Neoclassical Synthesis with the ‘heterodox’ post-Keynesian theory as well as their corresponding benchmark-models using scenario analyses. We model both a small and a large shock to autonomous investments and compare the policy recommendations. One of the key findings in this essay is that the two models provide different policy recommendations in the analysed scenarios. Another key finding is that the size and the persistence of the shock produced different results in the two models. We found that the underlying theories of the models were the most significant... (More)
This essay examines how the choice of theory and model affects the conclusions drawn regarding short run stabilization policy. This is done by comparing the ‘orthodox’ New Neoclassical Synthesis with the ‘heterodox’ post-Keynesian theory as well as their corresponding benchmark-models using scenario analyses. We model both a small and a large shock to autonomous investments and compare the policy recommendations. One of the key findings in this essay is that the two models provide different policy recommendations in the analysed scenarios. Another key finding is that the size and the persistence of the shock produced different results in the two models. We found that the underlying theories of the models were the most significant explanatory factors as to why the scenarios produced different policy outcomes. We therefore conclude that the choice of model is not ‘neutral’ with regards to policy and that the choice of models could have political implications. (Less)
Please use this url to cite or link to this publication:
author
Petersson, Hanna LU and Grandin, Embla LU
supervisor
organization
course
NEKN01 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
policy, scenario analysis, New Neoclassical synthesis, post-Keynesian, heterodox economics, orthodox economics
language
English
id
9211719
date added to LUP
2025-09-12 10:00:23
date last changed
2025-09-12 10:00:23
@misc{9211719,
  abstract     = {{This essay examines how the choice of theory and model affects the conclusions drawn regarding short run stabilization policy. This is done by comparing the ‘orthodox’ New Neoclassical Synthesis with the ‘heterodox’ post-Keynesian theory as well as their corresponding benchmark-models using scenario analyses. We model both a small and a large shock to autonomous investments and compare the policy recommendations. One of the key findings in this essay is that the two models provide different policy recommendations in the analysed scenarios. Another key finding is that the size and the persistence of the shock produced different results in the two models. We found that the underlying theories of the models were the most significant explanatory factors as to why the scenarios produced different policy outcomes. We therefore conclude that the choice of model is not ‘neutral’ with regards to policy and that the choice of models could have political implications.}},
  author       = {{Petersson, Hanna and Grandin, Embla}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Optimal stabilization policy: A comparison of an orthodox and a heterodox perspective}},
  year         = {{2025}},
}