Sunday, 06 September 2009

Debate on the State of Macroeconomics - a view from afar

The present debate about the state of Macroeconomics (here the last Krugman's contribution) is very interesting but a bit puzzling if viewed from here. It is maybe the advantage of seeing things from far away - if you work here it is quite obvious that representative agent models, real business cycle models, new keynesian models - any model for that matters - are only a very imprecise description of a complex system in which coordination failures, irrational behaviour, limited information, uncertainty, political economy, desomogeneity of agents, distribution of income and wealth, stocks and history matter a lot in the conduct of daily economic policy. I like models, and I find them useful ways to discipline the thinking, but if models becomes religions they are useless. What we are trying to do here is to introduce some of these characteristics of the economies where we live in the models we use. I think the state of uncertainty in modern macroeconomics gives us a great opportunity: let's go to work

1 comment:

  1. I learned the word "Filibuster" the other day. Wikipedia defines it as "a tactic for pirating or hijacking debate". And it dawned on me that DSGE models maybe doing exactly that...keep them busy with the debate so that the real questions never get answered!