Third Fundamental Neoclassical Tenet

This post will be the last to begin the Hunt-Lautzenheiser (2011, p.434) summary of the three fundamental tenets of textbook neoclassical theory: “… the faith that the invisible hand of the competitive market harmonizes all interests through free exchange, creates … 
Read More | Comment

Second Fundamental Neoclassical Tenet

Begin with a reiteration, from last week, of E.K. Hunt and Mark Lautzenheiser’s (2011, p.434) summary of the three fundamental tenets of neoclassical theory: “… the faith that the invisible hand of the competitive market harmonizes all interests through free … 
Read More | Comment

First Fundamental Neoclassical Tenet

 

E.K. Hunt and Mark Lautzenheiser (2011, p.434) nicely capture three fundamental tenets of mainstream neoclassical theory: “… the faith that the invisible hand of the competitive market harmonizes all interests through free exchange, creates rational prices, and leads to an … 
Read More | Comment

Central Banks’ Inflation Objective

The cornerstone of mainstream macroeconomists’ advice on monetary policy is the first and foremost emphasis on low, stable inflation. Full employment, if considered at all, is explicitly secondary. That guidance is dead wrong. The only specification of stabilization objectives that … 
Read More | Comment

Zero-Bound Interest Rates

This week’s post wraps us our three weeks of attention to the New Keynesian thinking of Michael Woodford, this time examining monetary-policy recommendations he has made to help manage the extreme instability that characterized the Great Recession. The exercise demonstrates, … 
Read More | Comment

Woodford’s Unanswered Questions

 

Last week’s post cited Michael Woodford. He has long exercised outsized influence on New Keynesian macroeconomics. His status was captured in a conversation I had at a Fed dinner a few years after the publication of Woodford’s Interest and Prices: … 
Read More | Comment

Two Keynesians, One Early, One New

 

My former colleague at MIT, the late Franco Modigliani (1977) forcefully asserted that the economy “needs to be stabilized, can be stabilized, and therefore should be stabilized by appropriate monetary and fiscal policies.” As a charter member of the Early … 
Read More | Comment

Foxhole Keynesians

Edward Prescott once derided monetary easing as no more “effective in bringing prosperity as rain dancing is in bringing rain”. He is, of course, correct if the monetary stimulus is conducted within the mainstream micro-coherent, market-centric, general-equilibrium model class. By … 
Read More | Comment

Bob Hall’s Open Kimono

Bob Hall’s Brookings Papers article, “How Much Do We Understand about the Modern Recession” (2:2007) is must read for all macroeconomists. The recommendation is not because readers will learn much about the nature modern recessions. They won’t. His description of … 
Read More | Comment

Arthur Okun’s Forgotten Contribution

 I knew Arthur Okun. In the late 1960s and 1970s, Washington economists working at agencies variously tasked to stabilize the economy considered him to be the town’s preeminent macro theorist. He understood that  then-mainstream Keynesian modeling was centrally constructed both … 
Read More | Comment