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Crisis and theoretical methods: equilibrium and disequilibrium once again

Author

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  • Duncan Foley

    (Department of Economics, New School for Social Research)

Abstract

The financial crisis of 2007-8 damaged the credibility of macroeconomic analysis based on price-taking Walrasian intertemporal general equilibrium models. This talk explores methodological alternatives, particularly stable Nash-Cournot equilibria of social interaction models that center on agents’ response to other agents’ actions rather than on agents’ forecasts of future paths of prices and production. Social interaction equilibria in conjunction with constraints from information theory highlight the social coordination problems at the root of macroeconomic policy questions. Equilibrium concepts enhance the explanatory power of economic theories in contrast with the limitations of disequilibrium dynamical systems analysis and agent-based modeling. Constrained maximum entropy methods offer a general approach to macroeconomic modeling. Various conceptions of equilibrium in economics arise from distinct conceptions of expectations.

Suggested Citation

  • Duncan Foley, 2017. "Crisis and theoretical methods: equilibrium and disequilibrium once again," Working Papers 1703, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:1703
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    File URL: http://www.economicpolicyresearch.org/econ/2017/NSSR_WP_032017.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Sims, Christopher A., 2005. "Rational inattention: a research agenda," Discussion Paper Series 1: Economic Studies 2005,34, Deutsche Bundesbank.
    2. J. Doyne Farmer & Duncan Foley, 2009. "The economy needs agent-based modelling," Nature, Nature, vol. 460(7256), pages 685-686, August.
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    Cited by:

    1. Corrado Di Guilmi, 2017. "The Agent†Based Approach To Post Keynesian Macro†Modeling," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1183-1203, December.
    2. Di Guilmi, C. & Gallegati, M. & Landini, S. & Stiglitz, J.E., 2020. "An analytical solution for network models with heterogeneous and interacting agents," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 189-220.

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    More about this item

    Keywords

    Economic equilibrium; statistical equilibrium; Nash-Cournot equilibrium; expectations; maximum entropy;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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