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Macroeconomics - Which Way Now? Old versus New Styles

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  • Sheetal K. Chand

Abstract

This paper contrasts the new style of doing macroeconomics, where the emphasis is on propositions rigorously derived from neoclassical micro foundations, with the old style associated with the work of Keynes in particular. The paper argues that the latter type of model, which is based on more realistic albeit informal behavioural micro foundations, is better suited to the concerns of policy makers. However, emphasis on the new style has led to an abandonment of research on adapting the old paradigms to new concerns, with a consequent loss for practical policy making especially with respect to macro stabilization. A perspective on how the new style can and cannot be helpful is provided.

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File URL: http://www.nopecjournal.org/NOPEC_2004_a02.pdf
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Bibliographic Info

Article provided by Nordic Journal of Political Economy in its journal Nordic Journal of Political Economy.

Volume (Year): 30 (2004)
Issue (Month): ()
Pages: 11-26

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Handle: RePEc:noj:journl:v:30:y:2004:p:11-26

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Web page: http://www.nopecjournal.org

Related research

Keywords: macroeconomic policy; neoclassical micro foundations; behavioural psychology;

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  1. Christopher A. Sims, 1996. "Macroeconomics and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 105-120, Winter.
  2. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
  3. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  4. Hoover,Kevin D., 2001. "The Methodology of Empirical Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521802727, October.
  5. Hendry, David F., 2000. "Econometrics: Alchemy or Science?: Essays in Econometric Methodology," OUP Catalogue, Oxford University Press, number 9780198293545.
  6. Karl Ove Moene & Asbjorn Rodseth, 1991. "Nobel Laureate: Trygve Haavelmo," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 175-192, Summer.
  7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  8. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February.
  9. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
  10. Andvig, Jens Christopher, 1988. "From macrodynamics to macroeconomic planning : A basic shift in Ragnar Frisch's thinking?," European Economic Review, Elsevier, vol. 32(2-3), pages 495-502, March.
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