Post-macroeconomics -- reflections on the crisis and strategic directions ahead

For decades, many researchers argued that economics had nothing to fear from enriching itself with lessons and advances from other disciplines. Unfortunately, these suggestions were either neglected or dismissed upfront in what was then arbitrarily considered mainstream economics. The global crisis has led even Nobel Prize winners to acknowledge that the problem facing economists and policy makers today is mostly intellectual - it is the need to confront the systematic failure of thinking, especially on the part of macroeconomists. Despite its unprecedented magnitude and heavy financial, human, and intellectual cost, the crisis certainly does not invalidate everything that has been learned about macroeconomics. However, the costs highlight some of mistakes of the dominant intellectual macroeconomic framework. Post-macroeconomics should not be understood as another metanarrative of the end of metanarratives. The use of the prefix post here suggests and emphasizes much more than temporal posterity. Post-macroeconomics should follow from macroeconomics more than it follows after macroeconomics. The theorizing of post-macroeconomics is therefore neither systematically oppositional nor hegemonic. It does not advocate a - dialectic opposition - between macroeconomics and post-macroeconomics. Rather, it suggests that the latter builds on the former and goes beyond it.Economic Theory&Research,Debt Markets,,Banks&Banking Reform,Access to Finance

The History of Macroeconomics Viewed Against the Background of the Marshall-Walras Divide

Analysing the recent history of macroeconomics, my paper claims that the new classical revolution should be viewed as a substitution of Walrasian macroeconomics to the earlier prevailing Marshalian macroeconomics. The first part of the paper is concerned with two conceptual prerequisites, the relationship between macroeconomics and general equilibrium, the meaning of the “Keynesianism” modifier. In a second part, the different facets of the Marshall-Walras divide are expounded. My general claim is substantiated in the third paper of the paper. Herein, I claim that the IS-LM model is a simplified Marshallian general equilibrium model while real business cycle models belong to the Walrasian reserach programme. Finally, I express my scepticism as to the possibility of a New Neoclassical Synthesis.History of macroeconomics; Neoclassical Synthesis; New Neoclassical Synthesis; Keynesianism; Monetarism

The History of Macroeconomics from Keynes’s General Theory to the Present

This paper is a contribution to the forthcoming Edward Elgar Handbook of the History of Economic Analysis volume edited by Gilbert Faccarello and Heinz Kurz. Its aim is to introduce the reader to the main episodes that have marked the course of modern macroeconomics: its emergence after the publication of Keynes’s General Theory, the heydays of Keynesian macroeconomics based on the IS-LM model, disequilibrium and non-Walrasian equilibrium modelling, the invention of the natural rate of unemployment notion, the new classical attack against Keynesian macroeconomics, the first wave of new Keynesian models, real business cycle modelling and, finally, the second wage of new Keynesian models, i.e. DSGE models. A main thrust of the paper is the contrast we draw between Keynesian macroeconomics and stochastic dynamic general equilibrium macroeconomics. We hope that our paper will be useful for teachers of macroeconomics wishing to complement their technical material with a historical addendum.Keynes, Lucas, IS-LM model, DSGE models

The Brexit question will increase financial market volatility

That is the nearly unanimous response in a survey of leading experts, writes a Centre for Macroeconomics tea

Heterodox microeconomics and the foundation of heterodox macroeconomics

The resolution of the controversy over the microfoundations of macroeconomics is important to heterodox economics. In this essay, I argue that the controversy is due to misspecification. That is, the conventional understanding of the controversy is that it is a reductionist exercise of macroeconomics to mainstream microeconomics. However, mainstream microeconomics is theoretically incoherent and hence cannot provide the microfoundations for any macroeconomics, mainstream or heterodox. In addition, a common position in heterodox economics is that heterodox macroeconomics generates a mainstream microeconomics sub-structure. But it is argued that this is not the case; rather it generates a heterodox microeconomics substructure. The essay concludes with the argument that in heterodox economics the micro-macro dichotomy does not exist and hence the controversy should be dismissed.Heterodox; Microeconomics; Macroeconomics

The heterogeneous state of modern macroeconomics: a reply to Solow

Robert Solow has criticized our 2006 Journal of Economic Perspectives essay describing ?Modern Macroeconomics in Practice.? Solow eloquently voices the commonly heard complaint that too much macroeconomic work today starts with a model with a single type of agent. We argue that modern macroeconomics may not end too far from where Solow prefers. He is also critical of how modern macroeconomists use data to construct models. Specifically, he seems to think that calibration is the only way that our models encounter data. To the contrary, we argue that modern macroeconomics uses a wide variety of empirical methods and that this big-tent approach has served macroeconomics well. Solow also questions our claim that modern macroeconomics is firmly grounded in economic theory. We disagree and explain why.Macroeconomics

Revival of classical political economy: An exposition

The purpose of this paper is twofold: first, to discuss the theoretical foundations and policy implications of two of the offshoots of modern macroeconomics viz., supply-side economics and rational expectations; and second to evaluate the recent development of thinking in macroeconomics. Thereby it tries to bring forth the current state of macroeconomics, although the term “current” itself is a difficult term to define as the only constant thing is ‘change’, more so in case of an evolutionary science like economics. While highlighting the celebrated classical-Keynesian debate, it thoroughly examines the supply-side economics and rational expectations hypothesis with due importance to their practical application

The Paradoxical Fate of the Representative Firm

While modern theorising on the microfoundation of macroeconomics makes intense use of the representative firm notion, severe objections have been raised. Regarded from the history of thought this is the second time that its usefulness is called into question. The paper presents an old literature which has ended with the abandonment of the representative firm from competition theory because it neglects the innovation issue. It shows that its subsequent adoption to macroeconomics suffers from similar flaws. It follows that the representative firm is inappropriate for the analysis of modern competitive economies and should be withdrawn from macroeconomics as well.microfoundation, representative agent, aggregation, innovation, competition, Marshall, Schumpeter

Quantitative macroeconomics with heterogeneous households

Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the “standard” incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals’ key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?Macroeconomics ; Insurance