A History of Macroeconomics from Keynes to Lucas and Beyond by Michel De Vroey

By Michel De Vroey

This publication retraces the background of macroeconomics from Keynes's normal idea to the current. valuable to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic common equilibrium (DSGE) - period, every one governed via designated methodological criteria. within the Keynesian period, the publication experiences the next theories: Keynesian macroeconomics, monetarism, disequilibrium macro (Patinkin, Leijongufvud, and Clower) non-Walrasian equilibrium types, and first-generation new Keynesian versions. 3 levels are pointed out within the DSGE period: new classical macro (Lucas), RBC modelling, and second-generation new Keynesian modeling. The ebook additionally examines a number of chosen works geared toward providing choices to Lucasian macro. whereas now not eschewing analytical content material, Michel De Vroey makes a speciality of substantive exams, and the types studied are awarded in a pedagogical and bright but serious means.

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All in all, Keynes was dismissive of Tinbergen’s work, being of the opinion that little was to be gained from trying to test theoretical models empirically. Too much arbitrariness was involved in such an exercise, he argued. However, Keynes’s reservations towards the construction of macroeconometric models were to no avail. It was soon to become an industry that was growing too fast to be stopped by epistemological considerations such as Keynes’s. See Bateman (1990) and Garrone and Marchiotti (2004).

However, the fulfillment of long-period expectations remains assumed. In the last model, short-term expectations and long-term expectations are no longer assumed to be independent from one another. If we follow Kregel’s reconstruction, Keynes planned to drop this assumption in a later model. Be that as it may, it remains that Keynes did not go beyond the construction of the effective demand model, the latter having the perfect information assumption as its cornerstone. 18 A History of Macroeconomics from Keynes to Lucas and Beyond Keynes was hardly explicit about the way he extended Marshall’s reasoning.

The initial result of the change in demand is that at t1 the market equilibrium price rises to the distance 0-p1. At B, the market is in disequilibrium because the short-period normal equilibrium is not attained. Note, however, that market clearing prevails: normal supply and demand do not match, but market supply and demand do. Assume that it takes two weeks for firms to adapt and produce the new optimal quantity of fish; as a result, the market remains in the state of disequilibrium at t2. The short-period normal equilibrium is reached on the third week at point C.

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Categories: Economic History