May 29, 2003

Institutional Economics weighs in on Krugman and the "liquidity trap":

I think the main problem with Krugman�s (non-populist) work on this issue is that he seems to have walked away from what was a promising attempt to give modern micro-foundations to the traditional Hicksian idea of a liquidity trap and reverted back to an IS-LM framework that it is hopelessly ill-equipped for the task. As Luskin has sometimes shown, the more popular renditions of his ideas leave much to be desired too.
Posted by Greg Ransom