How to Model “Churn”

Theorists are always alert for interesting phenomena that lack a name. Lazear and Spletzer (L&S) recently called attention an unlabeled labor-related fact that they named “churn”: the hiring of replacements for employees who have left their jobs. Much of the … 
Read More | Comment

The Great Fact and the GEM Project

Michael Mandelbaum (2002, p.277) described the Industrial Revolution as “the most influential development in human history since the invention of agriculture ten thousand years ago”. Scholars have divided the economic transformation into two parts. The first part began toward the … 
Read More | Comment

Challenging MWR Significance, Part II

This post carries on last week’s look at NK theorists who argue that meaningful wage rigidity is not a necessary condition of coherent, stabilization-relevant macroeconomics. It has two parts. The first directly responds to the seminal article (Greenwald and Stiglitz, … 
Read More | Comment

Challenging MWR Significance, Part I

Anti-Keynesian insurgents in the 30-year macro war made no secret about their central objective. They sought to banish from acceptable model-building the widespread use of assumptions of convenience. They particularly targeted free parameters used by Early Keynesian to introduce meaningful … 
Read More | Comment

Blanchard and Wage Rigidities, Part II

As promised, this week’s post looks at Olivier Blanchard’s treatment of efficiency-wage theory (EWT). It is a companion piece to last week’s analysis of his stylized bargaining theory (BT). Blanchard believes that a useful NK model of wage determination can … 
Read More | Comment

Better Microeconomics

The great achievement of generalizing rational exchange from the marketplace to the large-establishment workplace is the derivation, from axiomatic model primitives, of meaningful wage rigidity. MWR demonstrates both downward nominal inflexibility over the business cycle and chronic time-varying labor rents. … 
Read More | Comment

Opportunity Alert

This essay is a stocking-full of holiday gifts, especially to young economists in search of dissertation and early-publication topics. The fundamental reconfiguration of macroeconomics induced by the generalization of rational exchange is both coherent, thereby playing by the modern academy’s … 
Read More | Comment

The New Keynesian 3-Equation Model

Two characteristics of the famous New Keynesian (NK) three-equation model (hereafter 3EM) are, from the perspective of the GEM Project, especially interesting. First, it has become important, broadly used in modern mainstream teaching and research. Second, it is misleading, dismayingly … 
Read More | Comment