By Jacques Drèze
Best students learn a number of particular departures from normal equilibrium idea that have major implications for the macroeconomic research of either constructed and constructing economies. Jacques Dr?ze considers uncertainty and incomplete markets and Nobel Laureate Robert Solow relates development conception to the macroeconomic framework. different concerns tested are the results for macro-policy of latest examine, together with Joseph Stiglitz's caution at the lost zeal for monetary marketplace liberalization which in part engendered the East Asian and Russian crises.
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Extra resources for Advances in Macroeconomic Theory (International Economic Association Conference Volume No. 133)
Ordinarily, however, through learning or policy intervention or institutional innovation or maybe even sometimes with the help of the insights of economists, coordination occurs. If it is successful, the economy behaves more like a neoclassical growth model, at least until another major shock generates another coordination failure. One difficulty with all accounts resting on the availability of several equilibria is that it is hard to imagine what would constitute an empirical test of the underlying model.
It is common practice in that literature to associate multiplicity with ‘self-fulfilling expectations’: when there exist multiple equilibria, it is enough that all agents expect one of them to come about, and their expectations will be realized. Again, the coordination of expectations without markets is a dark mystery. When equilibria are multiple but some are in a sense better than others, the possibility of a coordination failure arises. An inferior equilibrium may obtain, that could only give way to a superior one through a coordinated modification of the plans, or expectations, of some or all agents.
I believe that the subtext of the tremendous academic fuss about ‘microfoundations’ for macroeconomics was really all about the market-clearing function of prices. There were always at least informal microfoundations for Keynesian models, just the wrong sort of micro-foundations. 4 Another neoclassical reponse – real business cycles In much the same way that one reaction to Harrod-Domar was the elaboration of the neoclassical growth model, one reaction to Keynesian ideas was a reassertion of some sort of short-run neoclassical macro-model.