How Complicated Does the Model Have to Be?
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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- Maurice Obstfeld & Kenneth Rogoff, 1994.
"Exchange Rate Dynamics Redux,"
NBER Working Papers
4693, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
- Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
- Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
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- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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