Reflections on Modern Macroeconomics: Can We Travel Along a Safer Road?

In this paper we sketch some reflections on the pitfalls and inconsistencies of the research program - currently dominant among the profession - aimed at providing microfoundations to macroeconomics along a Walrasian perspective. We argue that such a methodological approach constitutes an unsatisfactory answer to a well-posed research question, and that alternative promising routes have been long mapped out but only recently explored. In particular, we discuss a recent agent-based, truly non-Walrasian macroeconomic model, and we use it to envisage new challenges for future research.Comment: Latex2e v1.6; 17 pages with 4 figures; for inclusion in the APFA5 Proceeding

Fluctuations of company yearly profits versus scaled revenue: Fat tail distribution of Levy type

We analyze annual revenues and earnings data for the 500 largest-revenue U.S. companies during the period 1954-2007. We find that mean year profits are proportional to mean year revenues, exception made for few anomalous years, from which we postulate a linear relation between company expected mean profit and revenue. Mean annual revenues are used to scale both company profits and revenues. Annual profit fluctuations are obtained as difference between actual annual profit and its expected mean value, scaled by a power of the revenue to get a stationary behavior as a function of revenue. We find that profit fluctuations are broadly distributed having approximate power-law tails with a Levy-type exponent $\alpha \simeq 1.7$, from which we derive the associated break-even probability distribution. The predictions are compared with empirical data.Comment: 6 pages, 6 figure

Truth or precision? Some reflections on the economists’ failure to predict the financial crisis

The failure of professional economic forecasters to predict the financial crises has led many to question the credibility of modern economics as a reliable foundation for economic policy. If economists were unable to foresee so big a crisis, how can they be trusted to cure or prevent it? Several accounts of this failure exist. The paper offers a tentative answer based on the lessons that may be drawn from the wisdom of a short list of past and present economists: Hayek, Neville Keynes, Mankiw, Tinbergen, Maynard Keynes and Lucas. The glue to keep such an odd bunch together is the distinction between truth and precision provided by science historian Ted Porter

The international synchronisation of business cycles: the role of animal spirits

Business cycles among industrial countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits”, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We do not need a correlation of exogenous shocks to generate synchronization. We also empirically test the main predictions of the model

Sickonomics : Diagnoses and remedies

Original article can be found at: http://www.tandfonline.com/ Copyright Taylor & FrancisIn their recent analysis of the alleged decay in modern economics, Ben Fine and Dimitris Milonakis claim to find its source and origin in the "marginal revolution" of the 1870s. They argue that this development led to "methodological individualism" and the detachment of economics from society and history. I contest their account of the marginal revolution and of the role of Alfred Marshall among others. They also fail to provide an adequate definition of methodological individualism. I suggest that neoclassical economics adopted a denuded concept of the social rather than removing these factors entirely. No such removal is possible in principle. It is also mistaken to depict neoclassical economics as the science of prices and the market. In truth, neoclassical economics fails to capture the true nature of markets. I consider some sketch an alternative explanation of the sickness of modern economics, which focuses on institutional developments since World War II.Peer reviewe

Microfoundations

This paper argues that the microfoundations programme can be understood as an implementation of an underlying methodological principle—methodological individualism—and that it therefore shares a fundamental ambiguity with that principle, viz, whether the macro must be derived from and therefore reducible to, or rather consistent with, micro-level behaviours. The pluralist conclusion of the paper is not that research guided by the principle of microfoundations is necessarily wrong, but that the exclusion of approaches not guided by that principle is indeed necessarily wrong. The argument is made via an examination of the advantages claimed for dynamic stochastic general equilibrium models, the relationship between parts and wholes in social science, and the concepts of reduction, substrate neutrality, the intentional stance, and hypostatisation