A History of Macroeconomics from Keynes to Lucas and Beyond by Michel De Vroey

By Michel De Vroey

This publication retraces the background of macroeconomics from Keynes's normal idea to the current. vital to it's the distinction among a Keynesian period and a Lucasian - or dynamic stochastic normal equilibrium (DSGE) - period, every one governed via targeted methodological criteria. within the Keynesian period, the e-book experiences the subsequent theories: Keynesian macroeconomics, monetarism, disequilibrium macro (Patinkin, Leijongufvud, and Clower) non-Walrasian equilibrium types, and first-generation new Keynesian types. 3 phases are pointed out within the DSGE period: new classical macro (Lucas), RBC modelling, and second-generation new Keynesian modeling. The ebook additionally examines a couple of chosen works aimed toward featuring possible choices to Lucasian macro. whereas now not eschewing analytical content material, Michel De Vroey makes a speciality of sizeable exams, and the types studied are awarded in a pedagogical and brilliant but severe approach.

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Any modification in demand across the first two sub-groups has an impact on employment. For example, a shift away from the demand for manufactured goods toward that for the goods of non-labor branch reduces wages and the level of activity. The effective demand model analyses what goes on in the manufacturing sector. This sector is treated as if it were a single branch. Fourth, Keynes replaced Marshall’s infinitely elastic demand with an upward-sloping aggregate demand curve, its slope being determined by the propensity to consume.

This was an inevitable occurrence at the time. The aim Keynes pursued was too ambitious; the concepts and tools to achieve it were lacking as, to some extent, they still are today. As stated by Colander: Keynes’s revolution failed not because its vision was wrong, but because the tools were inadequate to the task at hand. (Colander 2006: 69) Thus, Keynes’s failure was a foregone conclusion. However, in no way must this failure hide the extraordinary breakthrough he achieved. His work changed the course of economic theory by setting the scene for a new subdiscipline, macroeconomics, that is, simplified, applied, and policy-oriented general equilibrium analysis.

I disagree with Schumpeter’s judgment. As for Keynes, my view is that achieving his generalizing goal in a rigorous way was beyond his capabilities and time constraints. A second difficulty is that at the beginning of his inquiry Keynes wanted to highlight a malfunction of the equilibration mechanism by displaying an impediment to the adjustment process. Later, Leijonhufvud labeled this process Keynes’s General Theory 9 the “laws of motions” of markets, these motions following from agents’ reactions to market signals (Leijonhufvud 2006a).

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