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From Disequilibrium to Equilibrium Macroeconomics: Barro and Grossman's Trade-off between Rigor and Realism

Author

Listed:
  • Romain Plassard

    (Université Côte d'Azur, France
    GREDEG CNRS)

Abstract

During the 1970s, Keynesian macroeconomics was challenged by the New Classical Economics of Robert Lucas. This involved a battle between disequilibrium and equilibrium macroeconomics. My article contributes to explain why the equilibrium approach came to dominate. My case study is Robert Barro and Herschel Grossman. In 1971, Barro and Grossman elaborated the basic disequilibrium model. In 1976, they wrote the first book on disequilibrium macroeconomics – i.e., Money, Employment, and Inflation. However, at the end of the 1970s, they came to advocate for equilibrium models à la Lucas (1972, 1975). My article traces how and why

Suggested Citation

  • Romain Plassard, 2019. "From Disequilibrium to Equilibrium Macroeconomics: Barro and Grossman's Trade-off between Rigor and Realism," GREDEG Working Papers 2019-17, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2019-17
    as

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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2019-17.pdf
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    References listed on IDEAS

    as
    1. Frank Hahn, 1978. "On Non-Walrasian Equilibria," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 1-17.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Ronald G. Bodkin, 1969. "Real Wages and Cyclical Variations in Employment: A Re-Examination of the Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 353-374, August.
    4. Grossman, Herschel I, 1979. "Employment Fluctuations and the Mitigation of Risk," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 344-358, July.
    5. De Vroey,Michel, 2016. "A History of Macroeconomics from Keynes to Lucas and Beyond," Cambridge Books, Cambridge University Press, number 9780521898430.
    6. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    7. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
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    9. Mankiw, N Gregory, 1990. "A Quick Refresher Course in Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1645-1660, December.
    10. Grossman, Herschel I, 1973. "Aggregate Demand, Job Search, and Employment," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1353-1369, Nov.-Dec..
    11. Barro, Robert J. & Hercowitz, Zvi, 1980. "Money stock revisions and unanticipated money growth," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 257-267, April.
    12. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    13. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
    14. 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 241-254, April.
    15. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
    16. William Poole, 1976. "Rational Expectations in the Macro Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 463-514.
    17. Olivier Blanchard, 2000. "What Do We Know about Macroeconomics that Fisher and Wicksell Did Not?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1375-1409.
    18. Hahn, Frank H, 1977. " Exercises in Conjectural Equilibria," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 210-226.
    19. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    20. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
    21. Muriel Dal-Pont Legrand & Harald Hagemann, 2019. "Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"," GREDEG Working Papers 2019-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    22. Robert J. Barro & Herschel I. Grossman, 1974. "Suppressed Inflation and the Supply Multiplier," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 87-104.
    23. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    24. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    25. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-1144, December.
    26. Grossman, Herschel I, 1974. "The Cyclical Pattern of Unemployment and Wage Inflation," Economica, London School of Economics and Political Science, vol. 41(164), pages 403-413, November.
    27. Howitt, Peter, 1979. "Evaluating the Non-Market-Clearing Approach," American Economic Review, American Economic Association, vol. 69(2), pages 60-63, May.
    28. Grossman, Herschel I, 1971. "Money, Interest, and Prices in Market Disequilibrium," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 943-961, Sept.-Oct.
    29. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    More about this item

    Keywords

    business cycle; non-neutrality of money; disequilibrium macroeconomics; equilibrium macroeconomics;

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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