Neo-classical and new-keynesian economics a like have in common to explain involuntary unemployment as the result of real wage rigidity. The neo-classical analysis also postulatesa positive correlation between nominal and real wages (generally confirmed by empirical observations) so that any cutin money wages should result inacutinreal wages. As a consequence, money wage rigidities as sociated with some specific bargaining arrangements on the labour market would be responsible for involuntary unemployment.
According to Keynesinstead, the wage bargains between the entrepreneurs and the workers do not determine the real wage, and "there may exist no expedient by which labour as a whole can reduce its real wage to a given figure by making revised money bargains with the entrepreneurs" (Keynes 1936, p. 13). That means that coordination failures at the system level rather than at the labour market level would be responsible for unemployment which will be then involuntary in the strict sense. Recent contributions can be considered as a revival of this line of analysis (Hart 1982, D'Aspremont, Dos Santos Ferreira, and G´erard-Varet 1990).
They argue that imperfect competition in the goods markets would be responsible for the existence of involuntary unemployment at a level of real wages inferior to the competitive (or Walrasian) one. In this framework coordination takes place ex ante on a strategic basis and results in a general equilibrium with involuntary unemployment the existence of which is clearly explained by the existence of firms' (and unions) market power. Nevertheless, this unemployment could always be reduced, if not totally reabsorbed, thanks to a cutin real wages.
We share with Keynes the belief that coordination is the central issue in economic activity. But we think that it is better tackled by abandoning the equilibrium approach that characterizes Keynes' General Theory, and by seeing the working of the economy as a sequential out-of-equilibrium process. Involuntary unemployment appears then as the result of alack of coordination which emerges along the way, at each step, and cannot disappear simply by allowing price and wage flexibility. The study of out-of-equilibrium processes, in the Hicksian tradition (Hicks, 1973, Amendolaand Gaff ard, 1988,1998), allows to switch the focus from the analysis of price systems corresponding to alternative equilibrium states of the economy to the sequence of constrained decisions that describes an economic process taking place intime.
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Sterilization, Monetary Policy, and Global Financial Integration
