By Michel De Vroey
This publication retraces the heritage of macroeconomics from Keynes's common thought to the current. principal to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic normal equilibrium (DSGE) - period, each one governed via exact methodological criteria. within the Keynesian period, the ebook experiences the next theories: Keynesian macroeconomics, monetarism, disequilibrium macroeconomics (Patinkin, Leijongufvud and Clower), non-Walrasian equilibrium types, and first-generation new Keynesian types. 3 phases are pointed out within the DSGE period: new classical macroeconomics (Lucas), RBC modelling, and second-generation new Keynesian modeling. The publication additionally examines a number of chosen works geared toward offering possible choices to Lucasian macroeconomics. whereas no longer eschewing analytical content material, Michel De Vroey specializes in noticeable exams, and the types studied are offered in a pedagogical and vibrant but severe manner.
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Extra resources for A History of Macroeconomics
Keynes may well ha ve clinched a point by stating that this result can fail to happen. Still, the wage rigidity assumption as adopted in Keynes's effective demand model argumentation is not removed. 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.
Pigou, 1933: 253). Pigou's overall conclusion was that, to ensure an appropriate distribution of labor, wage deflation was necessary. He could not ha ve made a more orthodox statement. The conclusion 1 draw from this brief examination is that during the period considered little progress in explaining unemployment took place. The notion of frictional unemployment may well have been invented but is content was shallow. In view of my analysis in the previous section, this is hardly surprising. KEYNES'S EXPLANATION OF INVOLUNTARY UNEMPLOYMENT: THE EFFECTIVE DEMAND MODEL In The General Theory, Keynes mistakenly took the existence of frictional unemployment as granted and accounted for.
The transition from Keynes's economics to Keynesian economics was a two- step process, of which Hicks's models constituted the first stage. The second one was a shift from Hicks's use of the IS-LM framework to its modern version. As argued in De Vroey (2ooo), Modigliani's article, "Liquidity Preference and the Theory of Interest and Money" (1944), played a decisive role in this transformation. It is Modigliani's and not Hicks's version that underlay the first generation of IS-LM models. Surprisingly enough, this discontinuity has hardly been underlined.
A History of Macroeconomics by Michel De Vroey