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

The Alarming S/B/M Model, Part III

Faced with ever-accumulating evidence supporting heliocentricity, early astronomers persisted interpreting new facts within Ptolemy’s established geocentric theory of the solar system. Most refused to consider the alternative model, instead focusing on progressively more foolish Rube-Goldberg-like adjustments to geocentric mechanics. The … 
Read More | Comment

The Alarming S/M/B Model, Part II

In last week’s blog, I vented my distress over the claims of stabilization-relevance for the ubiquitous Search/Match/Bargain theory. I pointed out that, as demonstrated in the GEM Project, modern search analysis coherently accommodates neither involuntary job loss (IJL) nor recognizable … 
Read More | Comment

The Alarming S/M/B Model, Part I

I find the ubiquity and ambition of Search/Match/Bargaining theory alarming. Nearly all macro analysis that touches on the labor market relies on modern search theory that has been extended from its original focus on frictional joblessness to the stationary behavior … 
Read More | Comment

Useful Advice from Lucas

The GEM Project has figured out how to reconcile macroeconomic coherence and stabilization-relevance. The key is its microfounding of meaningful wage rigidity, comprised of downward inflexible nominal labor pricing over the business cycle and chronic labor rents. MWR enables causality … 
Read More | Comment