A Critical Essay on Modern Macroeconomic Theory

Front Cover
MIT Press, 1997 - Business & Economics - 158 pages
0 Reviews

Macroeconomics began as the study of large-scale economic pathologies such as prolonged depression, mass unemployment, and persistent inflation. In the early 1980s, rational expectations and new classical economics dominated macroeconomic theory, with the result that such pathologies can hardly be discussed within the vocabulary of the theory. This essay evolved from the authors' profound disagreement with that trend. It demonstrates not only how the new classical view got macroeconomics wrong, but alsohow to go about doing macroeconomics the right way.Hahn and Solow argue that what was originally offered as a normative model based on perfect foresight and universal perfect competition -- useful for predicting what an ideal, omniscient planner should do -- has been almost casually transformed into a model for interpreting real macroeconomic behavior, leading to Panglossian economics that does not reflect actual experience.Following an explanation of microeconomic foundations, chapters introduce the basic elements for a better macro model. The model is simple, but combined with the appropriate model of the labor market it can say useful things about the fluctuation of employment, the correlation between wages and employment, and the role for corrective monetary policy.

 

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

Perfectly Flexible Wages
9
Imperfect Wage Flexibility
49
Imperfect Competition
67
The Labor Market
85
Macroeconomics
105
Conclusions
133
Copyright

Other editions - View all

Common terms and phrases

Bibliographic information