Contrary to what has been argued by a number of critics, the aggregate demand-aggregate supply (AD-AS) framework is both internally consistent and in conformity with Keynes's own analysis. Moreover, the eclectic approach to behavioral foundations allows models in this tradition to take into account aggregation problems as well as evidence from behavioral economics. Unencumbered by the straightjacket of optimizing microfoundations, the approach can provide a useful starting point for the analysis of dynamic macroeconomic interactions. In developing this analysis, the AD-AS approach can draw on insights from the post-Keynesian, neo-Marxian and structuralist traditions, as well as from the burgeoning literature on behavioral economics.

1 Introduction

Several turn-of-the-century assessments of the state of macroeconomics regard the discipline as healthy. There may have been fierce debates and controversies, but these debates mainly served to highlight deficiencies of existing models and to stimulate the creation of new improved hybrid models. The history of macroeconomics, according to Blanchard (2000, p. 1375) is "one of a surprisingly steady accumulation of knowledge", and "progress in macroeconomics may well be the success story of twentieth century economics". Woodford's (1999) assessment gives slightly more weight to the disagreements and revolutions in the second half of the twentieth century. But Woodford also sees convergence, and he concludes that "modern macroeconomic models are intertemporal general equilibrium models derived from the same foundations of optimizing behavior on the part of...