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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Stagflation and the Phillips Curve, Part I

Rational-Expectations Phillips Curve

Robert Lucas and his colleagues kicked off the famous macro wars by using the stagflation decade to motivate their anti-Keynesian insurgency. From Lucas (1981):“Keynesian orthodoxy or the neoclassical synthesis is in deep trouble, the deepest kind of trouble … 
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Stagflation Analysis: Proper Policy

Recall Eugene Farmer’s (2010b, p.60) succinct description of the modern textbook explanation of the stagnation decade: “During the 1970s, the U.S. economy experienced high inflation and high unemployment at the same time and the data did not lie anywhere near … 
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Stagflation Analysis: Ignored Big Predictions

Generalized-exchange modeling has an unrivaled capacity to predict consequential macro events. This post summarizes three important stagflation-related predictions of GEM theory, each of which is out of reach of friction-augmented general-market-equilibrium (FGME) analysis.

Unstable Wage Structure

The GEM Project fundamentally alters our … 
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Two Models of Stagflation, One Useful, One Not

Mainstream FGME Analysis

Mainstream friction-augmented general-market-equilibrium theory cannot  explain the massive market failure that occurred during the stagflation decade. That episode featured simultaneous high unemployment and a powerful price-wage spiral that broke apart what had been a remarkably stable interindustry wage … 
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Chicago School’s Imperialist Agenda

Generalizing price-mediated exchange from the marketplace to information-challenged workplaces is the most significant extension of the economic reach of the rational modeling of human behavior since the heyday of the marginalists more than a century ago. It interests me that … 
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