As promised, this post illustrates the need to break away from friction-augmented general-market-equilibrium modeling, making room for policy-relevant macroeconomics. It reprints a Blog essay (October 28, 2016) that unsparingly reveals the uselessness of mainstream New Keynesian explanation of the 2007-09 …
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A Short History of Neoclassical Business Cycles: Part II
The conclusion of last week’s post deserves emphasis: “It should be made clear that, unlike the New Keynesians, Lucas – ever the rigorous theorist – has never been embarrassed about his rejection of forced joblessness. He correctly argues that the …
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A Short History of Neoclassical Business Cycles: Part I
By neoclassical, I mean modeling rooted the tenets of optimization and general equilibrium. This and next week’s post look the last half century of the neoclassical study of business cycles, here measured by unemployment fluctuations. It will be short. The …
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Wage-Rent Criticality
In generalized-exchange modeling, pure wage rent is a chronic outcome of optimizing employer-employee interaction in workplaces restricted by asymmetric information and routinized jobs. PWR is consequential, playing roles in economic phenomena including involuntary job loss, persistent cyclical unemployment, good and …
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Bosworth and Burns
Going on a decade ago, Shani Schechter and I used the unique power of generalized-exchange macroeconomics to construct our extreme instability model that does a good job explaining the 2008-09 Great Recession. It seemed to us that the biggest clue …
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Blanchard and Gali Tackle the Job Loss Puzzle
New Keynesian theory, the go-to model in modern macroeconomics, is a quagmire of seemingly insoluble puzzles. Readers of this Blog know that much of the difficulty is rooted in the New Neoclassical Synthesis, the academy’s governing directive for acceptable research. …
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The Most Damaging Error in NK Macroeconomics
Students are typically introduced to macroeconomics via the New Keynesian (NK) 3-equation model rooted in friction-augmented general market equilibrium. This post features the version in the popular textbook, Macroeconomics, by Carlin and Soskice (C&S). The first equation relates inflation-adjusted total …
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This Best Paper Is Not So Good
The editors of the American Economic Journal: Macroeconomics (AJE:M) have selected “Deconstructing Monetary Policy Surprises – The Role of Information Shocks” by Marek Jarocinski and Peter Karadi (hereafter J&K) as the best article appearing in their journal in 2020. The …
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The Industrial Revolution: Hard and Soft Laws
The GEM Blog’s month-long series on modeling of management reveals New Keynesian (NK) theorists’ badly incomplete understanding of the Industrial Revolution. The impact on the evolution of productivity-enhancing capital equipment is adequately grasped. Many also know that those technological advances …
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Modeling Management: Antecedent Analysis
As has become clear over the past month, mainstream New Keynesian (NK) theorists do not even try to inform their research with a recognizable treatment of management. This post demonstrates their negligence cannot be the result of a lack of …
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