Buiter, good macro critic?

Google scholar and a minimal knowledge of the DSGE literature allows one to refute Buiter’s claims in less than 10 minutes. Someone should really give him a quick lesson on Google scholar. No complete markets? Nope (first page of “dsge incomplete markets“). No asset bubbles? Negative. (third result from this search: “dsge asset bubbles“) Only […]

BCA all the way

The more I think about it, the more I think business cycle accounting should be the back-bone of the macro curriculum. Teach the growth models and then use BCA to show how the economy strays from that ideal. Wedges are so much more intuitive than fundamental shocks. You still have to learn real business cycle […]

Homework assignment: modern macro book outine

Dear eminent-macro-economist-who-would-have-a-chance-in-hell-to-get-this-to-stick – Please write this book. Intro Intertemporal consumption choice Growth Growth policy Labor or leasure choice Worker flows and unemployment Expectations (including learning stuff) Business cycles Monetary policy Political economy and fiscal policy Love, Those-of-us-that-will-actually-have-to-teach-this-crap

The failure of modern macro

Thomas Sargent complains that the arguments for the fiscal stimulus “ignore what we have learned in the last 60 years of macroeconomic research.” This is his fault. He and the other big names of modern macro have failed to produce a simple model (or a series of simple models) to replace the Keynesian one in […]

The trade-off between private diversification and efficiency

After making pretty easy work of Krugman, Waldman argues, “there’s a trade-off between microlevel diversification and macro-efficiency.” He then concludes: If we want to maintain a well-diversified aggregate portfolio, it may be necessary to restrict the degree to which the portfolio of firms and individuals can be diversified. This implies forcing individuals to bear more […]

Of mice and maximin

Gabriel summarizes the debate on fiscal stimulus and comes down on John Taylor‘s side (good choice). Those checks we got in the mail from the Feds didn’t increase aggregate demand; while take home pay went up, consumption didn’t. People, on average, put that money in savings (e.g. paid down their credit card debt). This conforms […]

IS/LM needs a bail-out

Somebody please defend our cherished models from the likes of this: The economy needs a boost to aggregate demand and since monetary policy isn’t working any more, fiscal policy has to step in. This is usually followed by drawing a graph with two or three curves on it. I’m not going to do it, but […]

Recapitulation

A certain Wall Street Journal opinion piece set of a mini-blog storm about the roll of policy in the cause and length of the Great Depression. The piece presented five myths. Here’s my take on them: Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that […]

Did Roosevelt prolong the Great Depression?

Yes. I know this from reading Eric Rauchway‘s great book The Great Depression and the New Deal. He provides a lot of data in support of the idea that Roosevelt implemented inefficient policies. Granted it takes a little bit of economic reasoning to get from that data to the conclusion that Roosevelt prolonged the depression, […]

Labor dynamics

This is the neatest graph I’ve seen in a while (from Davis et al 2006): The bottom numbers are the hazard rates, e.g. if you’re employed, every month you have a 2.6% chance of getting a new employer, a 2.7% chance of leaving the labor force and a 1.3% chance of becoming unemployed. (h/t Kling)