Advanced Macro Theory I

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 … 
Read More | Comment

Assessing New Keynesian Theory Part II

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 … 
Read More | Comment

Assessing New Keynesian Theory Part I

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 … 
Read More | Comment

What Could Have Been

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 … 
Read More | Comment

Misunderstood Efficiency-Wage Theory

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). … 
Read More | Comment

Kenneth Arrow versus Robert Lucas

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 … 
Read More | Comment

What Is Labor Economics?

I occasionally dip into EconSpark, an interactive blog sponsored by the American Economic Association. Recently I noticed that a participant posed the question: What is labor economics? That query is important and goes to the heart of the GEM Project. … 
Read More | Comment

Smith, Okun, and Chandler

 

In his masterwork, Adam Smith (1776) provides two particularly deep insights about economic activity: the spontaneous organization of self-interested market exchange (the “invisible hand”) and the nature and implications of production specialization (the “pin factory”). Smith sought to explain decentralized … 
Read More | Comment