Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory?

Cheng K. WU

Abstract


Abstract. Keynes’ General Theory (1936) is probably the most challenging economics book ever written, with an abundance of hypotheses, concepts and theories.  Twenty five years after its publication, Clower proposed an insightful explanation on Keynes, the Dual-Decision Hypothesis (DDH).  Hall (1978) and Flavin (1981) seemingly reached the conclusion that, under certain conditions, consumption was independent of income.  In contrast, Wu (2016) has shown that, change in saving has to be a function of income growth.  In fact, applying Wu’s corrected consumption for period t+1, it is possible to show DDH equations leading to Keynes’ change in saving (and disequilibrium) conclusion.

Keywords. Keynes, Clower, Keynesian, Disequilibrium, Dual decision hypothesis, Consumption, Martingale.

JEL. A10,  B2, B22, C20, E20, E60, F00.

Keywords


Keynes; Clower; Keynesian; Disequilibrium; Dual decision hypothesis; Consumption; Martingale.

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References


Clower, R.W. (1965). The Keynesian counterrevolution: A theoretical appraisal, in F.H. Hahn & F.P.R. Brechling (Eds), The Theory of Interest Rates, (pp.103-125). Macmillan.

Flavin, M.A. (1981). The adjustment of consumption to changing expectations about future income, Journal of Political Economy, 89(5), 974-1009. doi. 10.1086/261016

Friedman, M. (1957). A Theory of the Consumption Function, Princeton University Press.

Hall, R.E. (1978). Stochastic implications of the life cycle-permanent income hypothesis: Theory and evidence, Journal of Political Economy, 8(9), 971-987, doi. 10.1086/260724

Keynes, J.M. (1936). The General Theory of Employment, Interest, and Money, Hartcourt Brace Jovanovich.

Modigliani, F., & Brumberg, R. (1954). Utility analysis and the consumption function: An interpretation of cross-section data, in K.K. Kurihara, (Ed), Post-Keynesian Economics. Rutgers University Press.

Modigliani, F., & Brumberg, R. (1979). Utility analysis and aggregate consumption functions: An attempt at integration, in A. Abel (Ed), The Collected Papers of Franco Modigliani, Vol. 2, MIT Press.

Wu, C.K. (2016). New result in theory of consumption: Changes in savings and income growth - Nineteen years later, Journal of Economics Library, 3(1), 77-81.

Wu, C.K. (2017). Economics and how Obama could have lost the 2016 election too, Journal of Social and Administrative Sciences, Vol. 4(3), 283-288.




DOI: http://dx.doi.org/10.1453/jel.v4i4.1497

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