A History of Macroeconomics by Michel De Vroey

By Michel De Vroey

This publication retraces the historical past of macroeconomics from Keynes's normal idea to the current. vital to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic normal equilibrium (DSGE) - period, each one governed by way of designated methodological criteria. within the Keynesian period, the ebook reviews the next theories: Keynesian macroeconomics, monetarism, disequilibrium macroeconomics (Patinkin, Leijongufvud and Clower), non-Walrasian equilibrium types, and first-generation new Keynesian types. 3 phases are pointed out within the DSGE period: new classical macroeconomics (Lucas), RBC modelling, and second-generation new Keynesian modeling. The booklet additionally examines a couple of chosen works aimed toward proposing choices to Lucasian macroeconomics. whereas no longer eschewing analytical content material, Michel De Vroey makes a speciality of significant checks, and the types studied are provided in a pedagogical and brilliant but severe method.

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Take a standard supply and demand graph and draw a horizontal line from the ordinate at the given price. If this Jines crosses the supply and demand functions at their intersection, rationing is absent. Otherwise, the first function the line intersects is the short side. Although the agents on the short side of the market achieve their desired trade, those on the long side do not and are called rationed. IO A History of Macroeconomics from Keynes to Lucas and Beyond Marshall assumed that al! agents have a perfect knowledge of rnarket conditions.

Y. Tberefore, the possibility that sluggishness explains rationing rnust be excluded. Clearly, this result hinges on the perfect information assurnption; the latter is thus as rnuch a deus ex machina as the Walrasian auctioneer. Why not dispense with it then? '" Is this conclusion to be extended to the labor market? Although no systematic analysis of the labor market is to be found in the Principies, Marshall made scattered remarks about it. These pertained to the particularities of the demand for and supply of labor.

Hence no guarantee exists thar a decrease in wages will reduce unemployment: There is therefore no ground for the belief that a flexible wage policy is capable of maintaining a state of continuous full employment;- any more than for the belief that an open-market policy is capable, unaided, of achieving this result. The economic system cannot be made self-adjusting along these lines. (Keynes 1936: 267) Keynes took this conclusion as signifying thar too high wages are not rhe cause of involuntary unemploymenr.

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