Wrong-Foot Modeling

Wrong Question

In the most recent update of the Handbook of Monetary Economics, Mankiw and Reis (2010, p.222) begin their review of macro theory on the wrong foot. They follow standard practice by framing of the fundamental question of why money … 
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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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