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Heterodox Shocks

Author

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  • Greg Hannsgen

Abstract

Should shocks be part of our macro-modeling tool kit—for example, as a way of modeling discontinuities in fiscal policy or big moves in the financial markets? What are shocks, and how can we best put them to use? In heterodox macroeconomics, shocks tend to come in two broad types, with some exceptions for hybrid cases. What I call Type 1 shocks are one-time exogenous changes in parameters or variables. They are used, for example, to set computer simulations in motion or to pose an analytical question about dynamic behavior outside of equilibrium. On the other hand, Type 2 shocks, by construction, occur at regular time intervals, and are usually drawn at random from a probability distribution of some kind. This paper is an appreciation and a survey of shocks and their admittedly scattered uses in the heterodox macro literature, along with some proposals and thoughts about using shocks to improve models. Since shocks of both types might appear at times to be ad hoc when used in macro models, this paper examines possible justifications for using them.

Suggested Citation

  • Greg Hannsgen, 2013. "Heterodox Shocks," Economics Working Paper Archive wp_766, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_766
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    File URL: http://www.levyinstitute.org/pubs/wp_766.pdf
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    References listed on IDEAS

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    1. Éric Tymoigne, 2011. "Measuring Macroprudential Risk: Financial Fragility Indexes," Economics Working Paper Archive wp_654, Levy Economics Institute.
    2. Amitava Dutt, 2012. "Distributional dynamics in Post Keynesian growth models," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(3), pages 431-452.
    3. Chiarella,Carl & Flaschel,Peter, 2011. "The Dynamics of Keynesian Monetary Growth," Cambridge Books, Cambridge University Press, number 9780521180184, April.
    4. Fabrizio Coricelli & Riccardo Fiorito, 2013. "Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure," Working Papers LuissLab 13106, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    5. Greg Hannsgen, 2012. "Fiscal Policy, Unemployment Insurance, and Financial Crises in a Model of Growth and Distribution," Economics Working Paper Archive wp_723, Levy Economics Institute.
    6. James Tobin, 1970. "Rejoinder," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 328-329.
    7. Zdravka Todorova, 2009. "Money and Households in a Capitalist Economy," Books, Edward Elgar Publishing, number 13178.
    8. Peter Skott, 2011. "Business cycles," UMASS Amherst Economics Working Papers 2011-21, University of Massachusetts Amherst, Department of Economics.
    9. Chiarella,Carl & Flaschel,Peter & Franke,Reiner, 2011. "Foundations for a Disequilibrium Theory of the Business Cycle," Cambridge Books, Cambridge University Press, number 9780521369923, April.
    10. James Tobin, 1970. "Money and Income: Post Hoc Ergo Propter Hoc?," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 301-317.
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    Cited by:

    1. Sergio Parrinello, 2014. "A search for distinctive features of demand-led growth models," PSL Quarterly Review, Economia civile, vol. 67(270), pages 309-342.

    More about this item

    Keywords

    Shocks; Discontinuity; Dynamic Macro Models; Heterodox Macroeconomics; Growth and Fluctuations; Simulation Methodology;

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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