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Ending the microfoundations hegemony

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  • Simon Wren-Lewis

Abstract

The New Classical Counter Revolution changed macromodelling methodology and ushered in the hegemony of microfounded models. Yet, in reality, at any particular point in time there is a trade-off between data coherence and theoretical coherence, and insisting that all academically respectable modelling should be at one extreme of this trade-off is a major mistake. The paper argues that if more traditional structural econometric models (SEMs) had been developed alongside microfounded models, links between finance and the real economy would have been more thoroughly explored before the financial crisis, allowing macroeconomists to respond better to the Great Recession. Just as microfoundations hegemony held back macroeconomics on that occasion, it is likely to do so again. Macroeconomics will develop more rapidly in useful directions if microfounded models and more traditional SEMs work alongside each other, and are accorded equal academic respect.

Suggested Citation

  • Simon Wren-Lewis, 2018. "Ending the microfoundations hegemony," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 55-69.
    • Handle: RePEc:oup:oxford:v:34:y:2018:i:1-2:p:55-69.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grx054
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    1. Boug, Pål & Brasch, Thomas von & Cappelen, Ådne & Hammersland, Roger & Hungnes, Håvard & Kolsrud, Dag & Skretting, Julia & Strøm, Birger & Vigtel, Trond C., 2023. "Fiscal policy, macroeconomic performance and industry structure in a small open economy," Journal of Macroeconomics, Elsevier, vol. 76(C).
    2. Isaac Gross & Andrew Leigh, 2022. "Assessing Australian Monetary Policy in the Twenty‐First Century," The Economic Record, The Economic Society of Australia, vol. 98(322), pages 271-295, September.
    3. Gulan, Adam, 2018. "Paradise lost? A brief history of DSGE macroeconomics," Bank of Finland Research Discussion Papers 22/2018, Bank of Finland.
    4. Jochen O. Mierau & Mark Mink, 2018. "A Descriptive Model of Banking and Aggregate Demand," De Economist, Springer, vol. 166(2), pages 207-237, June.
    5. Warwick J McKibbin & Andrew Stoeckel, 2018. "Modelling a complex world: improving macro-models," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 329-347.
    6. Alexander Ballantyne & Tom Cusbert & Richard Evans & Rochelle Guttmann & Jonathan Hambur & Adam Hamilton & Elizabeth Kendall & Rachael McCririck & Gabriela Nodari & Daniel M. Rees, 2020. "MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 225-251, September.
    7. Kapur, Muneesh, 2018. "Macroeconomic Policies and Transmission Dynamics in India," MPRA Paper 88566, University Library of Munich, Germany.
    8. Gemmell, Norman, 2021. "Economic Lessons for Tax Policy Advisers," Working Paper Series 21109, Victoria University of Wellington, Chair in Public Finance.
    9. Gemmell, Norman, 2021. "Economic Lessons for Tax Policy Advisers," Working Paper Series 9463, Victoria University of Wellington, Chair in Public Finance.
    10. Muellbauer, John, 2018. "The Future of Macroeconomics," INET Oxford Working Papers 2018-10, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    11. repec:zbw:bofrdp:2018_022 is not listed on IDEAS
    12. Gulan, Adam, 2018. "Paradise lost? A brief history of DSGE macroeconomics," Research Discussion Papers 22/2018, Bank of Finland.
    13. Grant Allan & Gioele Figus & Peter G. McGregor & J. Kim Swales, 2021. "Resilience in a behavioural/Keynesian regional model," Environment and Planning A, , vol. 53(4), pages 858-876, June.
    14. Ray C. Fair, 2019. "Some Important Macro Points," Cowles Foundation Discussion Papers 2165, Cowles Foundation for Research in Economics, Yale University.
    15. Michel De Vroey, 2019. "Preface to the Chinese Edition of A History of Macroeconomics from Keynes to Lucas and Beyond," LIDAM Discussion Papers IRES 2019006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    16. Ray C. Fair, 2019. "Some Important Macro Points," Cowles Foundation Discussion Papers 2165R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2019.
    17. Schoder, Christian, 2020. "A Keynesian Dynamic Stochastic Disequilibrium model for business cycle analysis," Economic Modelling, Elsevier, vol. 86(C), pages 117-132.
    18. De Grauwe, Paul & Ji, Yuemei, 2020. "Structural reforms, animal spirits, and monetary policies," European Economic Review, Elsevier, vol. 124(C).
    19. David F. Hendry, 2020. "A Short History of Macro-econometric Modelling," Economics Papers 2020-W01, Economics Group, Nuffield College, University of Oxford.
    20. Tom van Veen, 2020. "Have Macroeconomic Models Lost Their Connection with Economic Reality?," CESifo Working Paper Series 8256, CESifo.
    21. Mikael Randrup Byrialsen & Hamid Raza, "undated". "An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark," Economics Working Paper Archive wp_942, Levy Economics Institute.
    22. Ponomarenko, Alexey, 2020. "A note on observational equivalence of micro assumptions on macro level," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-15.
    23. Nissanke, Machiko, 2019. "Exploring macroeconomic frameworks conducive to structural transformation of sub-Saharan African economies," Structural Change and Economic Dynamics, Elsevier, vol. 48(C), pages 103-116.
    24. Warwick Mc & David Vines, 2023. "Longer-term structural transitions and short-term macroeconomic adjustment: quantitative implications for the global financial system," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(2), pages 245-266.

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