Keynes’ Rejection of Wage Rigidity

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This post addresses a long-standing curiosity in macroeconomics that is especially relevant to the GEM Project. Why did Keynes reject a role for nominal wage rigidity (WR) in his explanation of involuntary job loss? From The General Theory (1936): “There … 
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Macro Time Separation

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Early Keynesians’ dogged quest for policy relevancy was greatly abetted by their practicality. Whenever microfounded macro theory capable of providing useful advice was not available, they were not shy about using assumptions aligned with observable behavior to make existing models … 
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Where Economics Went Wrong

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I was attracted to the title. Not wanting to commit too quickly, I turned to SSRN and found Marianne Johnson’s review of Collander and Freedman’s Where Economics Went Wrong (2019). For our purposes, her first paragraph adequately summarizes the work:

“David … 
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Lessons from the 20th Century

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Bill Gates’ insightful review of Yuval Noah Harari’s 21 Lessons for the 21st Century (2018) stimulated this post. From the book’s introduction: “What are today’s greatest challenges and most important changes? What should we pay attention to? What should we … 
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Power of Generalized-Exchange Modeling in 470 Words

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Generalized-exchange theory is rooted in optimization and equilibrium, aligns with the relevant evidence, and is consistent the detailed descriptions provided by practitioners. It is a vastly more useful treatment of modern, highly specialized economies than market-centric New Keynesian (NK) modeling:

>The … 
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New Keynesian Labor-Market Model in 673 Words

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In Job Matching, Wage Dispersion, and Unemployment (2011) Tatsiramos and Zimmermann, hereafter T&Z, provide a compact summary of mainstream New Keynesian (NK) modeling of labor behavior in modern highly specialized economies. What follows describes that market-centric search/match theory which fundamentally … 
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The GEM Model in 457 Words

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Generalized-Exchange Macroeconomics bifurcates both households and firms, each of which rationally pursues self-interests governed by axiomatic preferences and technology. Households are constrained by heterogeneous initial endowments of financial assets. For the largest class, earnings from wealth contribute little to household … 
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Guidance from a Better Model

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John Haltiwanger has done important research on economic behavior inside complex, highly specialized firms. This post takes a look at a relatively recent entry in that scholarship, “Cyclical Job Ladders by Firm Size and Firm Wage”, American Economic Journal: Macroeconomics … 
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A Good Paper Could Be Better

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“The compensating wage differentials [CWD] model is widely regarded as one of the core models of wage determination in labor economics.” The quote is from Kurt Lavetti’s “Compensating Wage Differentials in Labor Markets: Empirical Challenges and Applications,” Journal of Economic … 
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