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A Perspective on the Current State of Macroeconomic Theory

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  • William Barnett

    (Department of Economics, The University of Kansas)

Abstract

Historically, microeconomics was the domain of scientific methodology in economics, while macroeconomics attracted less mathematically oriented economists. In recent years, the level of sophistication of macroeconomics has grown dramatically, and that field now attracts many of the most mathematically oriented economists. Nevertheless, the field's set of shared views (i.e., maintained hypothesis) has not grown. The purpose of the scientific method is to permit the maintained hypothesis within a field to grow by establishing a rigorous methodology for deductively deriving and empirically testing hypotheses. The field of macroeconomics has failed that test of scientific success during precisely the decades of most rapid growth in the use of scientific methodology. It is argued that the source of the paradox lies in the fact that the inroads of science in macroeconomics have been asymmetric. Central to the definition and objectives of macroeconomics is dimension reduction and dynamics. Rigorous dimension reduction is impossible without formal aggregation, and complex dynamics is impossible without nonlinearity. Yet applications of formal aggregation theory and nonlinear dynamics to macroeconomics have progressed very slowly, at the time that scientific methodology in other areas of macroeconomics have advanced rapidly. This asymmetry explains the paradox.

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Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201218.

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Length: 20 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Handle: RePEc:kan:wpaper:201218

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  1. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  2. Barnett, William A & Offenbacher, Edward K & Spindt, Paul A, 1984. "The New Divisia Monetary Aggregates," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1049-85, December.
  3. Muellbauer, John, 1975. "Aggregation, Income Distribution and Consumer Demand," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 525-43, October.
  4. Barnett, William A & Fisher, Douglas & Serletis, Apostolos, 1992. "Consumer Theory and the Demand for Money," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2086-2119, December.
  5. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  6. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc.
  7. Barnett, William A. & Ronald Gallant, A. & Hinich, Melvin J. & Jungeilges, Jochen A. & Kaplan, Daniel T. & Jensen, Mark J., 1995. "Robustness of nonlinearity and chaos tests to measurement error, inference method, and sample size," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 301-320, July.
  8. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005.
  9. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  10. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  11. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 109-30, January.
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Cited by:
  1. William Barnett & Yi Liu, 2012. "Beyond the Risk Neutral Utility Function," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201216, University of Kansas, Department of Economics, revised Sep 2012.

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