A NeoWicksellian in a New Classical World: The Methodology of Michael Woodford’s Interest and Prices

Woodford’s Interest and Prices is considered from a methodological point of view. While innovative as a work of macroeconomic theory, it is decidedly in the mainstream methodologically. As such, it provides a good example of the methodological puzzles posed by modern macroeconomics: first, the notion that representative-agent models (or models with very constrained sorts of heterogeneous agents) provide genuine microfoundations; second, the idea that Paretian welfare economics in the context of such models gives any useful policy guidance.woodford, neowicksellian, classical

Microfoundations of macroeconomics. Post-Keynesian contributions on the theory of the firm

Looking through contributions about microeconomic theory, from classics to modern theory, it is possible to identify various attitudes on the role that firms play in the market. To simplify the existing multiplicity of opinion, two distinct positions can be recognized: 1) the first one considers the theory of the firm, its choices about price and production as ruled by consumer sovereignty, assuming that it is the eagerness to buy that drives the market. The entrepreneur’s and consumer’s interests converge thanks to automatic mechanisms leading to equilibrium. It is well-known that neoclassical economists can be ascribed to this trend of study. 2) the second position, on the other hand, considers the side of production as having a higher incidence in the identification of market equilibrium, as firms are able to set prices and co-ordinate demand behaviour. This turn-round in causality defines a market where the demand-supply relationship does not follow the rules of competitive-marginalist equilibrium, but alternative principles. The aim of this study is to analyse the contribution of Post-Keynesian scholars about this theme in the belief that the fundamental assumptions and conclusions they have drawn represent an alternative to the traditional theory, and are worth being considered carefully. However, in the identification of the theoretical foundations of Post-Keynesian microeconomics theory, one can run into the difficulty of reducing to few unification principles the content of very different contributions, which often stand out for their critical positions vis-à-vis orthodox theory rather than for setting up the parts of a single alternative paradigm . Besides, Post-Keynesians have a strong taste for macroeconomics themes, rather than for microeconomics ones, since they believe that the macro aggregates determine the behaviour of small decision-making units. In fact, looking at this literature, one can find a lot of contributions on this subject: the most reputed (Kalecki 1954, and, for an expansion of this, Asimakopulos 1975 and Cowling 1982) explain the formation of prices and produced quantities as the results of decision-making process of firms as a whole. These theories set themselves out as theories of investment decisions, profit accumulation, and the conflicting nature of income distribution. This point of view, however, is submitted to the criticism of those who argue that Post-Keynesian theory does not possess persuasive microeconomics bases and that, even though it can be maintained that in the process of aggregation the firms behave uniformly in influencing aggregate production and income distribution, it is always necessary to define the rules that allow each unit to take its production choices. Most recently, some scholars have committed themselves to define the rules of such a decision-making process and to clarify the reasons why the interests between consumers and producers in the market do not converge. In so doing, they have tried to provide a microeconomic foundation to the distributive conflict identified at an aggregate level. These different contributions underline various dimensions of the undertaker’s decision-making mechanism. However, I believe that they share some common elements, as they are characterized by a common global vision that brings about a persuasive alternative to the theoretical system of neoclassical microeconomics. The aim of the present study is that of presenting the key elements of the Post-Keynesian global vision on the theory of the firm, and of explaining why price mechanisms prevail over quantity-determining mechanism.Post Keynesian; Theory of the firm

A micro-meso-macro perspective on the methodology of evolutionary economics: integrating history, simulation and econometrics

Applied economics has long been dominated by multiple regression techniques. In this regard, econometrics has tended to have a narrower focus than, for example, psychometrics in psychology. Over the last two decades, the simulation and calibration approach to modeling has become more popular as an alternative to traditional econometric strategies. However, in contrast to the well-developed methodologies that now exist in econometrics, simulation/calibration remains exploratory and provisional, both as an explanatory and as a predictive modelling technique although clear progress has recently been made in this regard (see Brenner and Werker (2006)). In this paper, we suggest an approach that can usefully integrate both of these modelling strategies into a coherent evolutionary economic methodology.

Beyond the DSGE Straitjacket

Academic macroeconomics and the research department of central banks have come to be dominated by Dynamic, Stochastic, General Equilibrium (DSGE) models based on micro-foundations of optimising representative agents with rational expectations. We argue that the dominance of this particular sort of DSGE and the resistance of some in the profession to alternatives has become a straitjacket that restricts empirical and theoretical experimentation and inhibits innovation and that the profession should embrace a more flexible approach to macroeconometric modelling. We describe one possible approach

The Teaching of First Year Economics in Australian Universities*

This paper surveys current pedagogical practice in the teaching of introductory macroeconomics and microeconomics in Australian universities. Survey results are presented detailing lecturers’ approaches to their teaching over 2001 and other aspects of their teaching environment. A comparison of the content and methodology of the main textbooks used in Australian introductory economic courses is also presented.

Use of put options as insurance

An important question in insurance is the amount of coverage to purchase. A standard microeconomic model for insurance shows that full insurance is optimal. I present a different model where the decision variable is the number of put options and show that full insurance is still optimal, but the number of put options required to achieve this is larger than the endowment of risky assets. The model I present is based on a binomial model for a financial market, where the put option represents insurance.Insurance, put option, binomial model, risk averse, risk neutral

A SHORT REVIEW OF MACROECONOMICS DEVELOPMENT

Resumen El objetivo de este documento es entender, clasificar y proporcionar un importante resumen de los rasgos fundamentales de la macroeconomía con fundamentos microeconómicos y la macroeconomía como soporte de la microeconomía. Este documento puede ser interesante para aquellos que desean entender como estas dos escuelas macroeconómicas se han desarrollado. Macroeconomía con fundamento microeconómicos presenta cuatro ramas: la Síntesis Neoclásica, Monetaristas, Nuevos Clásicos y Real Business, mientras la macroeconomía como soporte de la microeconomía solo presenta la rama de los Nuevos Keynesianos. Aunque estas escuelas tienen sus ideas particulares, cada rama las usa con diferentes propósitos. Aunque el desarrollo del pensamiento macroeconómico ha mostrado diferentes puntos de vista que han generado debate dentro del campo, los economistas, con el tiempo, han tomado en cuenta estas diferencias para generar nuevas ideas. Por ejemplo, actualmente la mayoría de los economistas han escrito economía aplicada y teórica teniendo en cuenta la noción de equilibrio y fallas del mercado. Abstract The aim of this paper is to understand, classify and thus provide an important summary of fundamental features of Macroeconomics with microeconomics backgrounds and Macroeconomics as a background of microeconomics. It could be particularly interesting for those who wish to understand how these two macroeconomics schools of thought have developed. Macroeconomics with microeconomics backgrounds has four branches: Neoclassical Synthesis, Monetarist, New Classical and Real Business, whereas Macroeconomics as a background of microeconomics just has the New Keynesians branch. Even though these schools have their own particular ideas, each branch uses them for a different purpose. Although the development of macroeconomic thought has shown different views what have arisen interesting debates in economic field, economists have taken into account these different views to come up with new ideas throughout time. For instance, now days most economists have written applied and theory work bearing in mind equilibriums and fails of the market. JEL- Classification: B22 , B23, N1Macroeconomics, Macroeconomics schools of thought, Microeconomics, Expectations

Good-byE old, hello new in teaching economics

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An Interview with Paul A. Samuelson

This paper consists of the page proofs of W. A. Barnett's interview of Paul A. Samuelson, to appear in print in the journal, Macroeconomic Dynamics, in September 2004. To our knowledge, this is the first and only interview of Paul A. Samuelson published in a professional economics journal. In addition, this is the only interview conducted personally by the Editor of Macroeconomic Dynamics, William A. Barnett. The interview covers Samuelson's views on the economics profession from 1929 to the present and an overview of Samuelson's career as one of the greatest economists of all time.history of economic thought, Samuelson, macroeconomics, microeconomics, policy