Microfoundations: a decisive dividing line between Keynesian and new classical macroeconomics?
It is often argued that what marks the difference between Keynesian macroeconomics and new classical macroeconomics (the first installment of dynamic stochastic general equilibrium models) is the presence of microfoundations. These are deemed to be absent in the Keynesian approach, but central to the new classical one. The aim of my paper is to critically discuss this view. Lucas and Sargent defined the microfoundations requirement as consisting of two elements, optimizing behavior and market clearing. I claim that an alternative, weaker, definition is conceivable, which can be traced back to Hayek and Patinkin. According to them, the microfoundations requirement consists of a single criterion, optimizing planning. This definition, I claim, is better than the new classical one. Next, I examine whether Keynesian macroeconomics, which admittedly does not abide by the Lucas-Sargent definition, does accord with the Hayek-Patinkin approach. My conclusion is that Keynes’s General Theory is indeed microfounded in this sense, although no single conclusion can be drawn for Keynesian models in general.
|Date of creation:||31 May 2010|
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- Michel De Vroey, 2004.
"The History of Macroeconomics Viewed against the Background of the Marshall-Walras Divide,"
History of Political Economy,
Duke University Press, vol. 36(5), pages 57-91, Supplemen.
- Michel, DE VROEY, 2004. "The History of Macroeconomics Viewed Against the Background of the Marshall-Walras Divide," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Michel De Vroey, 2007.
"Did The Market-Clearing Postulate Pre-Exist New Classical Economics? The Case Of Marshallian Theory,"
University of Manchester, vol. 75(3), pages 328-348, 06.
- Michel, DE VROEY, 2005. "Did the market-clearing postulate pre-exist new classical economics ? The case of Marshallian theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005011, Université catholique de Louvain, Département des Sciences Economiques.
- De Vroey, Michel, 1997.
"IS-LM "à la Hicks" versus IS-LM "à la Modigliani","
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1998003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Michel De Vroey & Pierre Malgrange, 2012.
"From The Keynesian Revolution to the Klein-Goldberger model: Klein and the dynamization of Keynesian theory,"
History of Economic Ideas,
Fabrizio Serra Editore, Pisa - Roma, vol. 20(2), pages 113-136.
- Michel DE VROEY & Pierre MALGRANGE, 2010. "From The Keynesian Revolution to the Klein-Goldberger Model: Klein and the Dynamization of Keynesian Theory," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
- Michel De Vroey, 1998. "Is the tatonnement hypothesis a good caricature of market forces?," Journal of Economic Methodology, Taylor & Francis Journals, vol. 5(2), pages 201-221.
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