Modigliani's 1944 Wage Rigidity Assumption and the Construction of the Neoclassical Synthesis

Modigliani's 1944 "Econometrica" article is considered one of the most important efforts to reconcile Keynes with classical economic thinking. The aim of this paper is to reconstruct the genesis of Modigliani's article and to reexamine its place in the construction of Neoclassical Synthesis. Modigliani introduced the wage rigidity hypothesis to show how monetary factors influence real variables such as the employment level and the interest rate. Modigliani?s attention to the monetary origin of and solution to unemployment is in stark contrast to the neglect in Neoclassical Synthesis of the monetary side of the system and its inclination towards fiscal policy