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Internal consistency, price rigidity and the microfoundations of macroeconomics


  • Simon Wren-Lewis


Macromodels based on microfoundations represent the dominant approach in macroeconomics. These models appear to adopt a clear methodological approach, which promotes internal consistency above external consistency as a necessary condition of admissibility. This paper develops two arguments. The first is that internal consistency makes the development of microfounded macromodels dependent on the pace of theoretical innovation. This had led to an internal debate between 'pragmatists' who argue for limited departures from internal consistency, and 'purists' who claim that this would compromise methodological integrity. The second argument is directly relevant to this debate. It is that the inclusion of price rigidity into these models via short-cuts like Calvo contracts has required a key modification of the microfoundations methodology, such that internal consistency can only be claimed indirectly by appeal to theory developed elsewhere. This modification has repercussions that imply that the microfoundations project is not as unblemished as the 'purists' imagine.

Suggested Citation

  • Simon Wren-Lewis, 2011. "Internal consistency, price rigidity and the microfoundations of macroeconomics," Journal of Economic Methodology, Taylor & Francis Journals, vol. 18(2), pages 129-146.
  • Handle: RePEc:taf:jecmet:v:18:y:2011:i:2:p:129-146
    DOI: 10.1080/1350178X.2011.575950

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    Blog mentions

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      by Mainly Macro in Mainly Macro on 2013-12-19 21:35:00
    5. Microfoundations and the Phillips curve
      by Mainly Macro in Mainly Macro on 2014-04-02 22:20:00
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      by Mainly Macro in Mainly Macro on 2014-05-09 18:36:00
    7. Paul Romer and microfoundations
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    8. The day macroeconomics changed
      by Mainly Macro in Mainly Macro on 2015-08-27 15:58:00
    9. 'The Day Macroeconomics Changed'
      by Mark Thoma in Economist's View on 2015-08-27 14:23:47
    10. Medicine and the microfoundations hegemony in macroeconomics
      by Mainly Macro in Mainly Macro on 2017-08-25 13:20:00

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    internal consistency; microfoundations;


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