Taking Important Evidence Seriously

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What will it take for mainstream New Keynesians (NK) to take available, consequential evidence seriously? The approach generally used today is to cherry pick macro facts, recognizing only those that align with consensus friction-augmented general market equilibrium (FGME) modeling. That … 
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Advanced Macro Theory I

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I just read Ricardo Caballero and Alp Simsek’s  “A Note on Temporary Supply Shocks with Aggregate Demand Inertia” in the recent issue of AEJ: Insights. It is a good, useful paper. From their abstract: “We study optimal monetary policy during … 
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Assessing New Keynesian Theory Part II

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As promised last week, this post elaborates on NK ambitions to make friction-augmented general-market-equilibrium (GME) macro theory settled doctrine. No nonmarket modeling, including analysis of rational exchange that occurs inside highly specialized firms, is needed or, increasingly, tolerated.

In the illustrative … 
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Assessing New Keynesian Theory Part I

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I have spent most of my career using macro theory to help government and private-sector policymakers understand how the economy, writ large, works. During the mainstream run of New Keynesians (NK) that task required substantial reconstruction of textbook analysis. The … 
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What Could Have Been

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I just read Ricardo Caballero and Alp Simsek’s  “A Note on Temporary Supply Shocks with Aggregate Demand Inertia” in the recent issue of AEJ: Insights. It is a good, useful paper. From their abstract: “We study optimal monetary policy during … 
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Misunderstood Efficiency-Wage Theory

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Costly misunderstanding. Efficiency wages, particularly the original morale-centric formulation that Solow and I pioneered, outlined how theorists could have gone about rationally disabling Keynes’s Second Classical Postulate (i.e., the equality between the market wage and the marginal disutility of work). … 
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Kenneth Arrow versus Robert Lucas

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Thomas Sargent, one of the most determined anti-Keynesians, once contrasted the core macro views of Kenneth Arrow and Robert Lucas, each broadly recognized as a titan of postwar economic thinking (Journal of Economic Literature, 2015, pp.43–64). Arrow (with Debreu) figured … 
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