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Privileging Micro over Macro? A History of Conflicting Positions

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Mainstream macroeconomists agree that we live in the age of microfoundations. The recent worldwide financial crisis may have emboldened critics of this microfoundational orthodoxy, but it remains the dominant view that macroeconomic models must go beyond supply and demand functions to the level of “deep parameters.” Microeconomics on this view is prior to macroeconomics. The standard narrative of the rise of microfoundations locates their origins in the work of Lucas and his new classical friends and followers in the 1970s. Our purpose is to step back and to reexamine the history of the relationship of microeconomics and macroeconomics without presupposing the truth of the standard narrative, challenging the association of microfoundations with Lucas and rational expectations.

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File URL: http://www.fea.usp.br/feaecon/RePEc/documentos/Duarte-Lima_WP2011_01_final.pdf
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Bibliographic Info

Paper provided by University of São Paulo (FEA-USP) in its series Working Papers, Department of Economics with number 2011_01.

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Date of creation: 01 Jan 2011
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Publication status: Published in book
Handle: RePEc:spa:wpaper:2011wpecon01

Note: Published in the book "Microfoundations Reconsidered: the relationship of micro and macroeconomics in historical perspective", edited by Pedro Garcia Duarte and Gilberto Tadeu Lima (Cheltenham, UK: Edward Elgar, 2012, ch. 1, pp. 1-18)
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Keywords: microfoundations; new classical macroeconomics; Robert Lucas; new Keynesian macroeconomics; new neoclassical synthesis;

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  1. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
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  11. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  12. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  13. 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.
  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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  16. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
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