A History of Macroeconomics from Keynes to Lucas and Beyond by Michel De Vroey

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By Michel De Vroey

This publication retraces the heritage of macroeconomics from Keynes's basic idea to the current. relevant to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic common equilibrium (DSGE) - period, each one governed by way of detailed methodological criteria. within the Keynesian period, the ebook reviews the subsequent theories: Keynesian macroeconomics, monetarism, disequilibrium macro (Patinkin, Leijongufvud, and Clower) non-Walrasian equilibrium versions, and first-generation new Keynesian types. 3 phases are pointed out within the DSGE period: new classical macro (Lucas), RBC modelling, and second-generation new Keynesian modeling. The ebook additionally examines a couple of chosen works geared toward offering possible choices to Lucasian macro. whereas no longer eschewing analytical content material, Michel De Vroey specializes in major checks, and the types studied are awarded in a pedagogical and bright but severe means.

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Extra info for A History of Macroeconomics from Keynes to Lucas and Beyond

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The above reasoning is based on the assumption of a rigid nominal wage. When introducing this assumption, Keynes announced that he would remove it in a second stage of his analysis without this removal impairing his aggregatedemand-deficiency claim. 21 The line of reasoning adopted by Keynes in this chapter was to study the conditions under which a decrease in nominal wages fails to cause an increase in employment. His argumentation ran as follows. The favorable effect on employment of this decrease depends on whether such a reduction will improve investment.

11 An additional explanation was his adhesion to the classical dichotomy. The latter consists of dividing economics into two broad subfields: value theory, dominated by equilibrium principles, where market clearing always obtains; and business cycle theory, in which monetary disturbances are supposed to play a central role and that is divorced from those principles. The notions of equilibrium and disequilibrium may still be evoked, but their use is more metaphorical than analytical. The problem is of course how to reconcile these two strands.

However, Keynes’s reservations towards the construction of macroeconometric models were to no avail. It was soon to become an industry that was growing too fast to be stopped by epistemological considerations such as Keynes’s. See Bateman (1990) and Garrone and Marchiotti (2004). 26 A History of Macroeconomics from Keynes to Lucas and Beyond pioneering piece of macroeconomic econometrics was Larry Klein’s Economic Fluctuations in the United States 1921–41, published in 1950 for the Cowles Commission.

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