There are three most damning facts about New Keynesianism, the mainstream macro school that coalesced in the 1990s as the compromise solution to prolonged macro war between the great Early Keynesians and the upstart New Classicals. First, rational-behavior NK …
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The Social Contract and the GEM Project
Macro stability is a critical part of the social compact. Our capacity to understand, and design policies to beneficially influence, the behavior of employment, output, wage income, profits, and inflation is entrusted to macroeconomists. It is a responsibility for …
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Understanding the Great Recession: Most Troubling Question
UNDERSTANDING THE GREAT RECESSION: MOST TROUBLING QUESTION
Here is the most troubling question about the badly inadequate foundations of the NK macro model. Why didn’t the advent of the GEM Project resolve the debilitating problems associated with the …
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Understanding the Great Recession: The Core NK Model Part II
UNDERSTANDING THE GREAT RECESSION: THE CORE NK MODEL PART II
This post continues our look at Robert Shimer’s Labor Markets and Business Cycles (2010). The focus switches to another aspect of the New Keynesian (NK) use of search/match theory …
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Understanding the Great Recession: The Core NK Model Part I
Understanding the 2007-09 Great Recession centrally requires modeling that explains GR evidence. Involuntarily lost jobs in the millions heads the list. The GEM Project has constructed a exceptionally powerful model of labor-market failure, featuring downward wage rigidity (DWR) consistent …
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Understanding the Great Recession: Romer in What Have We Learned
The proliferation of books in which leading economists offer advice on how best to respond to the Great Recession provides snapshots of what remains the modern state of macroeconomics. Of particular interest to the GEM Project is the star-studded …
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Understanding the Great Recession: Preventing Extreme Instability
The GEM Project, by intuitively generalizing rational exchange, has considerably strengthened our capacity to model macro instability. This post provides a compact summary of the policy implications of that breakthrough, with special attention to how best to deal with …
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Understanding the Great Recession: GEM Extreme-Instability Model
The GEM Project’s rational-behavior model of the 2008-09 Great Recession, an outline of which occupies this post, is enabled by its microfounding of meaningful wage rigidity in large, highly specialized firms. Macro theorists know that such firms produce a …
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Understanding the Great Recession: Setting the Stage, Part II
GEM propagation of the 2008-09 financial turmoil and associated collapse of investor confidence is at the heart of the Project’s modeling of the Great Recession. (See the next post.) Mainstream macro theorists ignore crucial propagation dynamics and instead concentrate …
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Understanding the Great Recession: Setting the Stage, Part I
In this and a few subsequent posts, GEM analysis is used to explain the 2008-09 Great Recession. The analysis improves on the mainstream New Keynesian (NK) narrative and faulty policy advice. What follows sets the stage. The series then …
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