Edited by Michael Szenberg and Lall Ramrattan
Lall Ramrattan and Michael Szenberg
Modigliani entered economics as a pioneer in the interpretation of Keynesian economics. He built a model for Keynesian economics, which he fitted to data. The results at first failed to predict some economic phenomena such as stagflation in the 1970s. The model was re-specified by the Federal Reserve Bank and continues to be useful in the areas of stabilization for its many novelties. This chapter provides specification for Modigliani’s novel contributions to Keynesian economics, particularly in the areas of the life-cycle consumption function, liquidity preference and wage rigidity. Theoretically, his model used the demand for money as a common denominator for Keynes and the classics. Equilibrium based on monetary neutrality brings the real and monetary sides of the economy into equality. Modigliani took a microeconomic approach to macroeconomics, especially deriving consumption behaviour from utility analysis.