On the consistency of microfounded macromodels

Having trained as a mathematician I can say that mathematics was great fun but for most of the time, simple arithmetic is all that I need as a real world accountant.

Sadly it looks as though economists enjoy their theories so much that they forget that they are supposed to be doing something useful.

LARS P. SYLL

“New Keynesian” macroeconomist Simon Wren-Lewis has a post up on his blog, trying to answer a question posed by Brad DeLong, on why microfounded models dominate modern macro:

Brad DeLong asks why the New Keynesian (NK) model, which was originally put forth as simply a means of demonstrating how sticky prices within an RBC framework could produce Keynesian effects, has managed to become the workhorse of modern macro, despite its many empirical deficiencies …

16527659-Abstract-word-cloud-for-Microfoundations-with-related-tags-and-terms-Stock-PhotoWhy are microfounded models so dominant? From my perspective this is a methodological question, about the relative importance of ‘internal’ (theoretical) versus ‘external’ (empirical) consistency …

I think this has two implications for those who want to question the microfoundations hegemony. The first is that the discussion needs to be about methodology, rather than individual models. Deficiencies with particular microfounded models, like the NK model, are generally well understood, and from a microfoundations point of view…

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