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How Complicated Does the Model Have to Be?

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  • Krugman, Paul

Abstract

Simple macroeconomic models based on IS-LM have become unfashionable because of their lack of micro-foundations, and are in danger of being effectively forgotten by the profession. Yet while thinking about micro-foundations is a productive enterprise, complex models based on such foundations are not necessarily more accurate than simple, ad-hoc models. Three decades of attempts to base aggregate supply on rational behaviour have not displaced the Phillips curve; inter-temporal models of consumption do not offer reliable predictions about aggregate demand. Meanwhile, the ease of use of small models makes them superior for many practical applications. So we should not allow them to be driven out of circulation. Copyright 2000 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 16 (2000)
Issue (Month): 4 (Winter)
Pages: 33-42

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Handle: RePEc:oup:oxford:v:16:y:2000:i:4:p:33-42

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Cited by:
  1. N. Gregory Mankiw, 2006. "The Macroeconomist as Scientist and Engineer," Harvard Institute of Economic Research Working Papers 2121, Harvard - Institute of Economic Research.
  2. Chatterjee, Sidharta, 2014. "Equilibrium Models of Macroeconomic Science: What to Look For in (DSGE) Models?," MPRA Paper 53893, University Library of Munich, Germany.
  3. Heinz-Peter Spahn, 2004. "Learning in Macroeconomics and Monetary Policy: The Case of an Open Economy," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 236/2004, Department of Economics, University of Hohenheim, Germany.
  4. Claudio H. Dos Santos, 2004. "Keynesian Theorizing During Hard Times: Stock-Flow Consistent Models as an Unexplored 'Frontier' of Keynesian Macroeconomics," Method and Hist of Econ Thought 0406001, EconWPA.
  5. Heinz-Peter Spahn, 2001. "On the theory of interest rate policy," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 355-380.
  6. Claudio Dos Santos, 2004. "Keynesian Theorizing During Hard Times: SStock-Flow Consistent Models as an Unexplored 'Frontier' of Keynesian Macroeconomics'," Macroeconomics 0405023, EconWPA.
  7. David Vines, 2003. "John maynard keynes 1937-1946: the creation of international macroeconomics," Economic Journal, Royal Economic Society, vol. 113(488), pages F338-F361, 06.
  8. Ian McDonald, 2008. "Behavioural Macroeconomics And Wage And Price Setting: Developing Some Early Insights Of John Maynard Keynes And Joan Robinson," CAMA Working Papers 2009-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Joaquim Pinto de Andrade & Maria Luiza Falcao Silva & Hans Michael Trautwein, 2003. "Prospects of Economic Integration and Incompatible Monetary Policies Among Mercosul Members," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] c65, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  10. Heinz-Peter Spahn, 2009. "The New Keynesian Microfoundations of Macroeconomics," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 317/2009, Department of Economics, University of Hohenheim, Germany.
  11. Pierpaolo Benigno, 2009. "New-Keynesian Economics: An AS-AD View," NBER Working Papers 14824, National Bureau of Economic Research, Inc.
  12. Pedro Garcia Duarte, 2011. "Not Going Away? Microfoundations in the Making of a New Consensus in Macroeconomics," Working Papers, Department of Economics 2011_02, University of São Paulo (FEA-USP).
  13. Mauro Boianovsky & Roger Backhouse, 2006. "Whatever Happened To Microfoundations?," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 76, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  14. Chamberlin, G. & Henry, S. G. B. & Satchi, M., 2003. "A model of the G-3," Economic Modelling, Elsevier, vol. 20(6), pages 1083-1095, December.
  15. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
  16. Thilak Ranaweera, 2004. "Ghost of the financing gap: an overlooked aspect of the aid debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(4), pages 637-652.
  17. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
  18. Artzrouni, Marc & Tramontana, Fabio, 2013. "The debt trap: a two-compartment train wreck," MPRA Paper 47578, University Library of Munich, Germany.
  19. Andrade, Joaquim Pinto de & Silva, Maria Luiza Falcao & Trautwein, Hans-Michael, 2005. "Disintegrating effects of monetary policies in the MERCOSUR," Structural Change and Economic Dynamics, Elsevier, vol. 16(1), pages 65-89, March.
  20. Holinski Nils & Kool Clemens & Muysken Joan, 2009. "International Portfolio Balance – Modeling the External Adjustment Process," Research Memorandum 033, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  21. Mauro Boianovsky, 2003. "The IS-LM Model and the Liquidity Trap Concept: from Hicks to Krugman," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] a13, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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