Variations on the Theme of Conning in Mathematical Economics

The mathematization of economics is almost exclusively in terms of the mathematics of real analysis which, in turn, is founded on set theory (and the axiom of choice) and orthodox mathematical logic. In this paper I try to point out that this kind of mathematization is replete with economic infelicities. The attempt to extract these infelicities is in terms of three main examples: dynamics, policy and rational expectations and learning. The focus is on the role and reliance on standard xed point theorems in orthodox mathematical economics

Axiomatic characterizations of the Walras correspondence for generalized economies

Equilibrium Theory;International Trade

Microfoundations: a decisive dividing line between Keynesian and new classical macroeconomics?

It is often argued that what marks the difference between Keynesian macroeconomics and new classical macroeconomics (the first installment of dynamic stochastic general equilibrium models) is the presence of microfoundations. These are deemed to be absent in the Keynesian approach, but central to the new classical one. The aim of my paper is to critically discuss this view. Lucas and Sargent defined the microfoundations requirement as consisting of two elements, optimizing behavior and market clearing. I claim that an alternative, weaker, definition is conceivable, which can be traced back to Hayek and Patinkin. According to them, the microfoundations requirement consists of a single criterion, optimizing planning. This definition, I claim, is better than the new classical one. Next, I examine whether Keynesian macroeconomics, which admittedly does not abide by the Lucas-Sargent definition, does accord with the Hayek-Patinkin approach. My conclusion is that Keynes’s General Theory is indeed microfounded in this sense, although no single conclusion can be drawn for Keynesian models in general.microfoundations, Keynes, new classical macroeconomics

Learning rationality, the stability of equilibrium and macroeconomics

A review of the literature concerning how individuals learn to form rational expectations and a discussion of the meaning of rationality in a macroeconomy characterized by highly decentralized markets.Macroeconomics ; Rational expectations (Economic theory)

Strategic substitutabilities versus strategic complementarities: Towards a general theory of expectational coordination?

This paper contrasts the views of expectational coordination in a stylised economic model under two polar assumptions: Strategic Complementarities (StCo) dominate or on the contrary are dominated by Strategic Substitutabilities (StSu). Although in the StCo case, "uniqueness" often "buys" "eductive stability", the two issues are strikingly different in the second case. Furthermore if, in the first case, incomplete information often improves "expectational coordination", it may have the converse effect in the StSu case. It is finally argued that, in macroeconomic contexts, StSu often unambiguously dominate StCo, even in a large class of models with Keynesian features, and even in an aggregate framework that magnifies the StCo effects. The "remains" of StCo in general cases are discussed.Strategic Complementarities (StCo) ; Strategic Substitutabilities (StSu)

New Monetarist Economics: models

The purpose of this paper is to discuss some of the models used in New Monetarist Economics, which is our label for a body of recent work on money, banking, payments systems, asset markets, and related topics. A key principle in New Monetarism is that solid microfoundations are critical for understanding monetary issues. We survey recent papers on monetary theory, showing how they build on common foundations. We then lay out a tractable benchmark version of the model that allows us to address a variety of issues. We use it to analyze some classic economic topics, like the welfare effects of inflation, the relationship between money and capital accumulation, and the Phillips curve. We also extend the benchmark model in new ways, and show how it can be used to generate new insights in the study of payments, banking, and asset markets.Money ; Monetary policy

Walras' Unfortunate Legacy

What I argue in this paper is that the direction economics ,and particularly theoretical economics, took in the 20th century was to a great extent due to Walras' influence. This was not so much the result of his own results but rather a reflection of his vision. He was convinced that economics should have “sound mathematical foundations” and his concern for this is reflected in his correspondence with his contemporaries such as Poincaré. However, his specific vision of the nature of equilibrium became the benchmark for modern economic theory and led us to the Arrow-Debreu model which is characterised by its lack of institutional features, and the lack of any proof of stability under adjustment, as later to be shown by Sonnenschein, Mantel and Debreu. Above all there is no place in this framework for out of equilibrium dynamics. Whilst Walras is to be lauded for his insistence on the interdepence of markets, we should also be aware that he set us on a path towards economic models which, while admirably internally consistent, seem to be unable to match the empirical evidence. I fear that Walras would not have been unhappy with this outcome.Walras; mathematical foundations; equilibrium; Arrow-Debreu model; interdependence of markets