Privileging Micro over Macro? A History of Conflicting Positions

Abstract

Mainstream macroeconomists agree that we live in the age of microfoundations. The recent worldwide financial crisis may have emboldened critics of this microfoundational orthodoxy, but it remains the dominant view that macroeconomic models must go beyond supply and demand functions to the level of “deep parameters.” Microeconomics on this view is prior to macroeconomics. The standard narrative of the rise of microfoundations locates their origins in the work of Lucas and his new classical friends and followers in the 1970s. Our purpose is to step back and to reexamine the history of the relationship of microeconomics and macroeconomics without presupposing the truth of the standard narrative, challenging the association of microfoundations with Lucas and rational expectations.microfoundations; new classical macroeconomics; Robert Lucas; new Keynesian macroeconomics; new neoclassical synthesis