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The Mathematization of Macroeconomics: A Recursive Revolution

  • K. Vela Velupillai

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    Frank Ramsey's classic framing of the dynamics of optimal savings, [51] as one to be solved as a problem in the calculus of variations and Ragnar Frisch's imaginative invoking of a felicitous Wicksellian metaphor to provide the impulse-propagation dichotomy, in a stochastic dynamic framework, for the tackling the problem of business cycles [17], have come to be considered the twin fountainheads of the mathematization of macroeconomics in its dynamic modes - at least in one dominant tradition. The intertemporal optimization framework of a rational agent, viewed as a signal processor, facing the impulses that are propagated through the mechanisms of a real economy, provide the underpinnings of the stochastic dynamic general equilibrium (SDGE) model that has become the benchmark and frontier of current macroeconomics. In this paper, on the 80th anniversary of Ramsey's classic and the 75th anniversary of Frisch's Cassel Festschrift contribution, an attempt is made to characterize the mathematization of macroeconomics in terms of the frontier dominance of recursive methods. There are, of course, other - probably more enlightened - ways to tell this fascinating story. However, although my preferred method would have been to tell it as an evolutionary development, since I am not sure that where we are represents progress, from where we were, say 60 years ago, I have chosen refuge in some Whig fantasies.

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    Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0807.

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    Date of creation: 2008
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    Handle: RePEc:trn:utwpde:0807
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    1. Smale, Stephen, 1976. "Dynamics in General Equilibrium Theory," American Economic Review, American Economic Association, vol. 66(2), pages 288-94, May.
    2. K. Vela Velupillai, 2005. "The Foundations of Computable General EquilibriumTheory," Working Papers 0093, National University of Ireland Galway, Department of Economics, revised 2005.
    3. Debreu, Gerard, 1991. "The Mathematization of Economic Theory," American Economic Review, American Economic Association, vol. 81(1), pages 1-7, March.
    4. Debreu, Gerard, 1984. "Economic Theory in the Mathematical Mode," American Economic Review, American Economic Association, vol. 74(3), pages 267-78, June.
    5. Kydland, Finn E., 2004. "Quantitative Aggregate Theory," Nobel Prize in Economics documents 2004-4, Nobel Prize Committee.
    6. Spear, Stephen E, 1989. "Learning Rational Expectations under Computability Constraints," Econometrica, Econometric Society, vol. 57(4), pages 889-910, July.
    7. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979, March.
    8. Debreu, Gerard, 1986. "Theoretical Models: Mathematical Forms and Economic Content," Econometrica, Econometric Society, vol. 54(6), pages 1259-70, November.
    9. Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland.
    10. repec:cup:cbooks:9780521643511 is not listed on IDEAS
    11. J.P. Fitoussi & K. Velupillai, 1990. "Macroeconomic Perspectives," UCLA Economics Working Papers 609, UCLA Department of Economics.
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