More on Woodford’s Macro-Theory Convergence

Last week’s post summarized Michael Woodford’s five key elements of the 21st-century consensus among macro theorists. He celebrates the general acceptance of the friction-augmented general-market-equilibrium (FGME) framework in modern analysis: “… the study of business fluctuations is no longer driven … 
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Shaky New Keynesian Foundations

Michael Woodford has long been a leader in rooting New Keynesian (NK) macroeconomics in friction-augmented general-market-equilibrium theory. In late 2008, when his market-centric thinking was being fundamentally challenged by events, Woodford participated in a symposium entitled “Convergence in Macroeconomics’’. With … 
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Preventing a Pandemic Depression

More than a decade ago, GEM Project economists constructed an extreme-instability model that demonstrated how monetary authorities prevented the 2008-09 financial crisis from morphing into a 21st-century depression. Today, that model has another important story to tell. This time it … 
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Third Venue of Rational Exchange, Part II

The most intrepid economic analysis of government behavior has come from public-choice theorists. Particularly interesting is that they play by formal rules of rational exchange (anchored by continuous equilibrium) in their modeling of the public venue. Public-choice theory is closely … 
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Third Venue of Rational Exchange, Part I

GEM macro modeling, focusing on rational exchange in both the marketplace and information-challenged workplaces, is obviously incomplete. Thorough analysis of highly specialized economies needs a third venue, in which exchange is arranged and implemented by government and is atypically price … 
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Labor Supply Elasticity and Pure Wage Rent

A favorite pastime of mine is browsing through macro textbooks, identifying familiar topics that are badly explained by mainstream friction-enhanced general-market-equilibrium (FGME) theory. In particular, I am looking for phenomena that cannot be adequately understood absent the generalization of rational … 
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Wrong-Foot Modeling

Wrong Question

In the most recent update of the Handbook of Monetary Economics, Mankiw and Reis (2010, p.222) begin their review of macro theory on the wrong foot. They follow standard practice by framing of the fundamental question of why money … 
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New Keynesian Labor Model in 514 Words

In Job Matching, Wage Dispersion, and Unemployment (2011) Tatsiramos and Zimmermann, hereafter T&Z, provide a compact summary of NK modeling of labor behavior in highly specialized economies. What follows is a bookend to last week’s post.

Search/Match Modeling of Labor Behavior

“The … 
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GEM Project Narrative in Four Hundred and Forty Words

 

Generalized-Exchange Macroeconomics bifurcates both households and firms, each of which rationally pursues self-interests governed by axiomatic preferences and technology. Households are constrained by heterogeneous initial endowments of financial assets. For the largest class, earnings from wealth contribute little to household … 
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Stagflation and the Phillips Curve, Part II

The aftermath of the stagflation decade featured a battle between the Early Keynesian (EK) and Rational Expectations (RE) versions of the Phillips curve: wj(t)=ao+a1(UN(t)–U(t))+pk(t) versus w(t)=ao+a1(UN(t)–U(t))+Etp(t+1). (The variables were defined last week.) Robert Lucas’s RE equation won that battle but … 
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