Keynes’ Analytical System as an Econometric Tool: Examining Macroeconomic Trends in the U.S. from 1950s to 1980s

Abstract

The initial goal of this paper is to develop the standard Keynes’ analytical system into a dynamic macro-econometric model, which is then applied to the analysis of macroeconomic indicators for the U.S. from 1950s to 1980s—a period marked by strong volatility of inflation, exchange rates and commodity prices. Based on the results obtained and, in particular, on the model’s structure and exogenous variables, it is possible to single out the main factors that explain the macro-trends observed in the American economy. Further, a second and more important goal is to evaluate if a simple macro-dynamic model can be a relevant tool in empirical analysis of macroeconomic developments. The results obtained indicate that, although the elements of the Keynesian system are most often used in a purely theoretical perspective, a macro-econometric model based on those elements can be successfully used in reproducing overall macroeconomic variables in a certain period—and the determinants of those macro-trends can be traced to the model’s exogenous variables.