I've always had a tough time understanding a couple things. First, I've never understood the outrage at the money multiplier/endogenous money stuff. At best it's a semantic difference (this is largely true of "endogenous money" I think, where it boils down to whether the FOMC is "accommodating" banks or whether you want to think about its bond market activities as more pro-active - it's a sin of omission vs. sin of commission argument). On the money multiplier I think Nick makes the right point that the multiplier is the same no matter where the injections occur. Noting that central banks sometimes inject money (the pro-active view of the FOMC) certainly doesn't rule out the idea that "loans create deposits". Whether loans create deposits or deposits create loans depends on one thing: at which step in the Macro 101 exercise you start tuning in.
This segues nicely into the equally odd treatment of the Keynesian multiplier. This one I think is even more right-there-in-front-of-you than the money stuff. Whether you're reading it in the Keynesian original (where the chapter on the multiplier doesn't even HAVE a G and everything is talked about in terms of I!), or in modern textbooks (where neither I nor G are functions of income and enter the equations in the exact same ways). When I TAed for our big intro macro lecture and I did my review lectures I made them work through both and show that they got the same answer, so that they understood why the model works the way it does: the income/expenditure equation and the consumption function, not some magical powers of the government.
Finally, I've never understood the tendency to treat Old Keynesians like troglodytes and New Keynesians as sophisticates when it comes to the main components of the model. All of the important elements of the Old Keynesian model are in the New Keynesian model. That's why it's a called "Keynesian". What the New Keynesian model adds is some dotting of the i's and crossing of the t's: more realistic price formation, expectation formation, etc. Some things drop out, too. You're better served going to Nick's post for that.
Procrastinating on April 24, 2017
1 hour ago