Sound Model-Building Guidance

Two weeks ago the GEM Blog took Olivier Blanchard to the woodshed for his assessment (in 2008) that the state of NK macroeconomics is “good”. A week ago, it went into some detail about the extraordinarily wrong-turn guidance from supposedly … 
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So Many Wrong Turns

This post extends last week’s essay, using the troubles of mainstream macroeconomics to illustrate a message of the GEM Project: Rational-behavior theory must replace the modern dependence both on assumptions of convenience and  on models that are “patently false” (Blanchard’s … 
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“The State of Macro Is Good”

 

The quote is from Olivier Blanchard in August 2008, at the beginning of the extreme instability that nearly tipped global economies into depression. His full statement is: “After the explosion (in both the positive and negative meaning of the word) … 
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New Keynesians on Business Cycles, Part II

Nowhere does the absence of microfounded meaningful wage rigidity (MWR) do more damage than in the analysis of business cycles. The evidence from modern model-building research is conclusive. Stabilization-relevant rational-behavior macroeconomics without MWR cannot be done. Yet NK theorists continue … 
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Understanding Involuntary Unemployment

 Last week’s post mused about how generalized-exchange modeling, had it been available and recognized, would have fundamentally altered Robert Barro’s career. Most significantly, his work with Hershel Grossman on “fixed-wage general-equilibrium” would have been credited with insightfully microfounding Keynesian income-driven … 
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Robert Barro and His Nobel

In the most important contribution to the fixed-wage general-equilibrium (FWGE) literature, Robert Barro and Herschel Grossman (1971), hereafter B&G, posit nominal wage rigidity in order to investigate the interdependence of rationing in the labor and goods markets. Such analysis must … 
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Proper Theorist Behavior

“Like any good [theory], it provides an explanation for something that is previously unexplainable. Just as important, it makes predictions that can be tested.” That is from Mike Brown’s review of When the Earth Had Two Moons (2019) by Eric … 
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