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The Mathematization of Macroeconomics. A Recursive Revolution

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  • Velupillai Kumaraswamy Vela
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    Abstract

    Frank Ramsey's classic framing of the dynamics of optimal savings, [44] as one to be solved as a problem in the calculus of variations and Ragnar Frisch's imaginative invoking of a felicitous Wicksellian metaphor to provide the impulse-propagation dichotomy, in a stochastic dynamic framework, for the tackling the problem of business cycles [13], have come to be considered the twin fountainheads of the mathematization of macroeconomics in its dynamic modes − at least in one dominant tradition. The intertemporal optimization framework of a rational agent, viewed as a signal processor, facing the impulses that are propagated through the mechanisms of a real economy, provide the underpinnings of the stochastic dynamic general equilibrium (SDGE) model that has become the benchmark and frontier of current macroeconomics. In this paper, on the 80th anniversary of Ramsey's classic and the 75th anniversary of Frisch's Cassel Festschrift contribution, an attempt is made to characterize the mathematization of macroeconomics in terms of the frontier dominance of recursive methods. There are, of course, other - probably more enlightened − ways to tell this fascinating story. However, although my preferred method would have been to tell it as an evolutionary development, since I am not sure that where we are represents progress, from where we were, say 60 years ago, I have chosen refuge in some Whig fantasies.

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    Bibliographic Info

    Article provided by Società editrice il Mulino in its journal Economia politica.

    Volume (Year): (2008)
    Issue (Month): 2 ()
    Pages: 283-316

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    Handle: RePEc:mul:jb33yl:doi:10.1428/27395:y:2008:i:2:p:283-316

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    1. Debreu, Gerard, 1984. "Economic Theory in the Mathematical Mode," American Economic Review, American Economic Association, vol. 74(3), pages 267-78, June.
    2. J.P. Fitoussi & K. Velupillai, 1990. "Macroeconomic Perspectives," UCLA Economics Working Papers 609, UCLA Department of Economics.
    3. Smale, Stephen, 1976. "Dynamics in General Equilibrium Theory," American Economic Review, American Economic Association, vol. 66(2), pages 288-94, May.
    4. K. Vela Velupillai, 2005. "The foundations of computable general equilibrium theory," Department of Economics Working Papers 0513, Department of Economics, University of Trento, Italia.
    5. Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland.
    6. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979.
    7. Kydland, Finn E., 2004. "Quantitative Aggregate Theory," Nobel Prize in Economics documents 2004-4, Nobel Prize Committee.
    8. Spear, Stephen E, 1989. "Learning Rational Expectations under Computability Constraints," Econometrica, Econometric Society, vol. 57(4), pages 889-910, July.
    9. Debreu, Gerard, 1986. "Theoretical Models: Mathematical Forms and Economic Content," Econometrica, Econometric Society, vol. 54(6), pages 1259-70, November.
    10. Debreu, Gerard, 1991. "The Mathematization of Economic Theory," American Economic Review, American Economic Association, vol. 81(1), pages 1-7, March.
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    Cited by:
    1. Elisabetta De Antoni, 2009. "Money and finance: the heterodox views of R. Clower, A. Leijonhufvud and H. Minsky," Department of Economics Working Papers 0908, Department of Economics, University of Trento, Italia.
    2. K.Vela Velupillai, 2012. "Towards a Political Economy of the Theory of Economic Policy," ASSRU Discussion Papers 1217, ASSRU - Algorithmic Social Science Research Unit.
    3. Stefano Zambelli, 2012. "Dynamical Coupling, Nonlinear Accelerator and the Persistence of Business Cycles," ASSRU Discussion Papers 1214, ASSRU - Algorithmic Social Science Research Unit.

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