A home for economists who believe macroeconomics can be both coherent and stabilization-policy relevant
The GEM website is a home for economists who believe that mainstream macroeconomics cannot usefully explain the costly instability that periodically rocks modern economies.
In particular, consensus thinking failed to guide policymakers' efforts to deal with the enormous welfare costs of the 2007-09 Great Recession – especially six million involuntarily lost jobs.
That failure is not surprising. Forced unemployment is beyond the reach of coherent market-centric theory that today dominates macro research.
The GEM Project offers an alternative approach that intuitively explains instability while maintaining both coherence and stabilization-relevance. In its central innovation, the Project generalizes rational exchange from the marketplace to the large-firm workplace, crucially microfounding meaningful wage rigidities – the key to policy-useful modeling.
Generalization of price-mediated exchange is offered as the next big idea in macroeconomics. We invite economists dissatisfied with the stabilization-policy limitations of mainstream theory to join us in constructing a better model.
The interactive GEM website provides a variety of ways to contribute:
There is something suspicious about Evolution or Revolution? (2019) that is shared by the earlier entries in the academy’s annual series on macro theory after the Great Recession. Few of the contributing authors explicitly use the mainstream market-centric DSGE model class to explain evidence produced by the 2008-09 extreme instability. They know that the model they use to instruct graduate students cannot handle that really important task.
Looking for someone with confidence in mainstream macroeconomics, this post turns to Robert Hall who is known to be a bold New Keynesian. My former M.I.T. colleague is not afraid to use what he teaches to explain significant evidence. Almost by default, Hall provides insight into the capacity of rigorous New Keynesianism to make sense out of the extraordinarily damaging macro crisis, including its lead-up, contraction, and aftermath. What follows draws upon three of the prolific theorist’s relevant publications:
New Keynesian Recessions
Prior to the 2008-09 extreme instability, Hall wrote a series of papers that separated U.S. recessions into two chronological classes. He asserts a metamorphosis, largely unspecified, of cyclical downturns into their “modern” form some time after the severe 1981-82 contraction. From Hall: “In the modern U.S. economy, recessions do not begin with a burst of layoffs. Unemployment rises because jobs are hard to find, not because an unusual number of people are thrown into unemployment.” Hall’s “modern” recessions are consistent with mainstream New Keynesian theory. NK downturns that cannot accommodate neither meaningful wage rigidity (MWR) nor...