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Beyond DSGE: A macrodynamic model with intertemporal coordination failure

  • Ronny Mazzocchi

    ()

The current consensus in macroeconomics, or New Neoclassical Synthesis (NNS), is based on dynamically stochastic general equilibrium (DSGE) modelling with a RBC core to which nominal rigidities are added by way of imperfect competition. The strategy is to minimize the frictions that are required to reproduce Keynesian results (in terms of persistent real effects of monetary policy) and Wicksellian results (in terms of interaction of interest and prices) in a rigorous framework with intertemporal optimization of consumption, forward-looking behavior and continously clearing markets. In reality the main contention of Keynes and Wicksell was saving-investment imbalances (i.e. capital market failures and intertemporal disequilibrium in modern parlance) that are notably absent from the NNS. The paper presents a dynamic model with endogenous capital stock whereby it is possible to assess, and hopefully clarify, some basic issues concerning the macroeconomics of saving-investment imbalances and to explore the dynamic properties of the system under different monetary policy rules.

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Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 0210.

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Date of creation: Jan 2010
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Handle: RePEc:usi:depfid:0210
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