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

By Michel De Vroey

This e-book retraces the heritage of macroeconomics from Keynes's normal thought to the current. critical to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic common equilibrium (DSGE) - period, each one governed through precise methodological criteria. within the Keynesian period, the publication experiences the next theories: Keynesian macroeconomics, monetarism, disequilibrium macro (Patinkin, Leijongufvud, and Clower) non-Walrasian equilibrium versions, and first-generation new Keynesian versions. 3 levels are pointed out within the DSGE period: new classical macro (Lucas), RBC modelling, and second-generation new Keynesian modeling. The publication additionally examines a couple of chosen works aimed toward offering choices to Lucasian macro. whereas now not eschewing analytical content material, Michel De Vroey makes a speciality of sizeable exams, and the versions studied are awarded in a pedagogical and brilliant but severe method.

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Although he did not like the term, he took its cause, wage rigidity, as a fact of life, at least in sorne circumstances. The only difference between the Keynesian and the classical subsystems bears on the slope of the LM curve. In the classical subsystem, it has a positive :~. As Hicks put it in his subsequent artide, "The Classics' Again": "[Rigidiry] is a special assump· tion that can be incorporated into any theory. Certainly the economists of the past cannot be criticized for not making it, for in their time, it would quite dearly, not ha ve been true.

The determination of equilibrium in a given branch first occurs as a thought experiment in the minds of firms' managers. lt becomes an objective observable market experiment at a later date. Marshall's jumped from firms' optimizing planning to market equilibrium, which means that he implicitly assumed that these expectations are correct. This implies that firms ha ve perfect foresight. ' 9 The fact that al! firms are in a state of individual equilibrium also implies that the market for the goods they produce is in equilibrium.

The same dismissive conclusion can be reached differently by confronting 'effective demand a la Keynes' with 'effective demand a la Marshall,' an alternative, more classical, way of extrapolating Marshall's theory of firms' individual equilibrium behavior. One element that they have in common is the perfect foresight assumption. It is here that a clue to the difference between them is to be found. When the strict Marshallian viewpoint is adopted, Keynes's General Theory everything is simple: it is assumed that the aggregate supply price function incorporares wages at their market-clearing magnitude.

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