ABSTRACT
In this chapter, I examine another strand of literature, imperfect competition models. While Keynes aimed at reaching his results within a perfect competition framework, the authors whom I will now study base their models on the view that a departure from this framework is needed in order to vindicate Keynes’ insights. As in earlier chapters, my analysis will be limited to a few seminal works – first, Hart’s model ([1982] 1991) and, second, Blanchard and Kiyotaki’s model ([1987] 1991).1 Hart’s paper played a pioneering role in promoting the idea that imperfect competition had Keynesian features, as indicated by its title, ‘A Model of Imperfect Competition with Keynesian Features’. However, it soon appeared that imperfect competition alone was insufficient for getting strong Keynesian results. A supplementary ingredient, such as nominal rigidity, had to be brought into the picture. This led to a second generation of models of which Blanchard and Kiyotaki’s work is emblematic.
