tag:blogger.com,1999:blog-582368152716771238.post3374449131052520861..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: What's wrong with macro?John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger26125tag:blogger.com,1999:blog-582368152716771238.post-35716895013123840402014-12-30T16:30:26.665-06:002014-12-30T16:30:26.665-06:00Here is a 2008 New-Keynesian model from PK, with f...Here is a <a href="http://www.princeton.edu/~pkrugman/optimalg.pdf" rel="nofollow">2008 New-Keynesian model from PK, with formatted equations.</a>Michael Rodgershttps://www.blogger.com/profile/13411059618332889717noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43183687433017183762014-12-08T12:10:53.515-06:002014-12-08T12:10:53.515-06:00"Where I work, at the St. Louis Fed, using an..."Where I work, at the St. Louis Fed, using an IS/LM model would invite ridicule. But the Board's FRB/US model is indeed an expanded IS/LM model - without the LM curve."<br /><br />Not trying to say one model is better than the other here, but just assume the ISLM model gave consistently better predictions, would it still invite more ridicule than a DSGE model?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-65218804949092758452014-12-07T11:29:46.821-06:002014-12-07T11:29:46.821-06:00" If old-time Keynesianism really does accoun..." If old-time Keynesianism really does account for the data, write it down and let's see."<br /><br />It really does. IS-LM (as Mark pointed out, not a radical model but a fairly classical interpretation of Keynes or, from a technical point of view, simply a short-run general equilibrium model of the money, bonds and output market which takes as given that GDP is below long-run potential) has been tested empirically during the last years in Europe and contractionary fiscal policy did turn out to be contractionary. As there are (thankfully) rarely such radical political-economical experiments we rarely get such extremely clear cut results.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-19760893214064638652014-12-06T06:47:29.968-06:002014-12-06T06:47:29.968-06:00Ragout,
Yes, I misunderstood; thought you were tel...Ragout,<br />Yes, I misunderstood; thought you were telling Roger Farmer that he's wrong to see himself as working in the Keynesian tradition, rather than responding to John Cochrane's comment along those lines.Kevin Donoghuehttps://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24053883397458097602014-12-05T18:20:50.423-06:002014-12-05T18:20:50.423-06:00I'm surprised no one has pointed out yet that ...I'm surprised no one has pointed out yet that ISLM isn't even Keynes - it's Hicks. ISLM doesn't appear in the Keynes' "80 year old book"; it's Hicks' stylized summary of part of it. And Hicks was well aware that ISLM had serious limitations; in his 1980 reflective piece in the JPKE (www.jstor.org/stable/4537583) he says that the "applied economist, who uses such methods" needs to be aware of these or ISLM will have no use beyond that of "a classroom gadget" (pp. 152-53).<br /><br />Maybe, John, you should be talking about "Hicksian macro" or, even better, "Hicksian ISLM". Then there's an interesting discussion to be had about a tool that many in academia think of as primarily as "a classroom gadget" but that seems to be used a lot by Hicks' "applied economists" working in the policy world. But identifying ISLM with "Keynesian economics" is a "No True Scotsman" fallacy, as Ragout rightly observes. Or, maybe even better, an example of Humpty Dumpty Economics. "When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."Markhttp://ideas.repec.org/e/psc51.htmlnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13048849240207130262014-12-05T14:34:28.486-06:002014-12-05T14:34:28.486-06:001. I could be wrong, but I don't recall ever s...1. I could be wrong, but I don't recall ever seeing Prof. Cochrane make any predictions about Kansas so I'm not really sure what your point is.<br /><br />2. If politicians in Kansas were immediately expecting some sort of massive supply-side response to a 1.6 percentage point cut in the top marginal rate, then they were wrong. <br /><br />3. As Scott Sumner has pointed out, Kansas has a relatively large government sector compared to other states in the region. Perhaps their real budget issue is more about spending than revenues.<br /><br />http://www.themoneyillusion.com/?p=27773<br /><br />4. The current unemployment rate in Kansas is 4.4%.Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80355543323728595162014-12-05T14:10:27.999-06:002014-12-05T14:10:27.999-06:00Everyone seems to be hung up on the word "Key...Everyone seems to be hung up on the word "Keynsian." I think John's main point is to attack the notion that during a recession, Gov spending of "any kind and of significant enough magnitude(whatever that means)" is enough to course correct us back to full employment and growth. This view - that PK and others keep spoon feeding to the public - is NOT taught in any graduate program and that's why he lampooned it.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-79058081519526050782014-12-05T13:55:15.917-06:002014-12-05T13:55:15.917-06:00Kevin,
You misunderstand. Maybe you don't kno...Kevin,<br /><br />You misunderstand. Maybe you don't know that a "no true Scotsman" argument is a type of fallacious, circular argument?<br /><br />I'm not stating my own definition of Keynesian economics. Instead I'm accusing Cochrane of making a circular argument: "proving" that there are no current Keynesians, by implicitly defining Keynesian economics as 1930s macro and nothing else.<br /><br />"I practice Keynesian economics!" says Farmer (right on this thread), and Krugman, and Sims, and Woodford, etc. "But not the True Keynesian economics," replies Cochrane.Ragoutnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16199005021176019742014-12-05T12:51:57.595-06:002014-12-05T12:51:57.595-06:00I'd have added the following link (PDF file) t...I'd have added the following link (PDF file) to the Benassy paper I had in mind if I'd realized it was available online. And, pretty please, can the comment form stop insisting I prove I'm not a robot?<br /><br />https://hal.inria.fr/file/index/docid/590513/filename/wp200614.pdf<br />Kevin Donoghuehttps://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38341663429016844852014-12-05T12:29:09.459-06:002014-12-05T12:29:09.459-06:00Cochrane is a typical Classical - talks about meth...Cochrane is a typical Classical - talks about methodology and not about explaining the basic facts. Big deal that the DSGEs are fancier than the ISLMs. What are the tools in the Classical toolkit - market clearing, super agents, well functioning markets with no liquidity constraints, choosing leisure etc....- to explain the world in depression? Huh? And if I am choosing leisure I wouldn't be in the labor force so I couldn't be unemployed. - John HAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91031720361776504412014-12-05T11:41:40.397-06:002014-12-05T11:41:40.397-06:00"Keynesian economics is defined as the obsole..."Keynesian economics is defined as the obsolete macro of the 1930s...."<br /><br />Tendentious much? Any sensible definition should reflect the way the term is actually used. Wikipedia's effort is not too bad: "the view that in the short run...economic output is strongly influenced by aggregate demand." Of course that's incomplete; we need to explain what we mean by AD. More sophisticated discussion would tease out where Keynesian economics differs from Walrasian theory, monetarism of various kinds, etc. You're not furthering the discussion be <em>defining</em> a school of thought as obsolete.<br />Kevin Donoghuehttps://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34228384817031436892014-12-05T11:31:52.756-06:002014-12-05T11:31:52.756-06:00"New-Keynesian" DSGE (Dynamic Stochastic...<em>"New-Keynesian" DSGE (Dynamic Stochastic General Equilibrium) models are much in vogue, but have really nothing to do with static Keynesian ISLM modeling. Many authors would like it to be so, but when you read the equations you will find these are just utterly different models.</em><br /><br />This, to my mind, is where you're wrong. I've read the equations and I see strong similarities between them. Now, you can say that's just me, but if I wanted to I could dig up many quotations from economics professors saying much the same thing. If Krugman annoys you too much, take a look at what Simon Wren-Lewis has to say; or you can find a paper by Benassy in which he uses a monetary OLG model to present IS/LM in a modern guise.<br />Kevin Donoghuehttps://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-70671888926967239872014-12-05T10:41:52.419-06:002014-12-05T10:41:52.419-06:00Economic theory is to some extent performative. Wa...Economic theory is to some extent performative. Wall St economists are surely trained in Keynesian economists judging by their pronouncements, then it seems likely that Keynesian theory is the most relevant for how the private sector thinks about macroeconomics, even if DSGE modeling is the preferred mode of academics.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8562631670912482212014-12-05T07:52:30.339-06:002014-12-05T07:52:30.339-06:00Have you considered changing your avatar to you ye...Have you considered changing your avatar to you yelling at the NYT not the WSJ? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47549578621337708012014-12-04T22:06:00.724-06:002014-12-04T22:06:00.724-06:00Slightly off topic but here's a John Taylor po...Slightly off topic but here's a John Taylor post from a few years ago about Keynesians, New Keynesians and "anti-Keynesians."<br /><br />http://economicsone.com/2011/07/20/what-does-anti-keynesian-mean/Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33647952878242327872014-12-04T21:27:20.021-06:002014-12-04T21:27:20.021-06:00This sounds like a "no True Scotsman" ar...This sounds like a "no True Scotsman" argument. Farmer, or Krugman, or Woodford, or Diamond, or Sims, or Tobin, or many others, may see themselves as working in the Keynesian tradition, but they are wrong by definition. Keynesian economics is defined as the obsolete macro of the 1930s (or sometimes the obsolete big model macro of the 1960s), no modern macro could possibly be Keynesian. Ragoutnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64400627455334120142014-12-04T20:58:54.756-06:002014-12-04T20:58:54.756-06:00Did you hear about Kansas? (o-o) Tax department ...Did you hear about Kansas? (o-o) Tax department economists blew the income tax forecast by -$330 million after Brownback's tax cuts. They blamed it on the ATRA of 2012 pulling forward capital gains (at $330M/4.9% top tax rate = 6.7 billion in capital gains pulled forward). Never knew sunflowers paid so well (they don't and it's untrue that this was the cause). Maybe the truth is Art Laffer help them with their forecast. <br /><br />http://www.nytimes.com/2014/10/23/upshot/kansas-faces-additional-revenue-shortfalls-after-tax-cuts.html<br /><br />Brownback is just plum shocked, blaming the legislature for the cuts he signed. Let's watch though, because Art Laffer, and I presume you, are predicting a turn-around in the short-run in Kansas's under-performing economy. Or maybe the long-run.<br /><br />http://kcur.org/post/kansas-slashes-revenue-forecast<br /><br />This is kind of interesting: Russian cash registers are RINGING thanks to the devaluation of the ruble (or is that rubble) and credible threats of inflation...<br />http://www.cnbc.com/id/102240080?trknav=homestack:topnews:1<br /><br />Krugman, to his credit today is thinking about the oil issue on-line, which will be helpful to our country and economists, like even in Kansas. <br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-78711902645329179932014-12-04T20:56:10.852-06:002014-12-04T20:56:10.852-06:00I haven't read the book, but other writing of ...I haven't read the book, but other writing of yours that I have read is very innovative novel economics, not good old time Keynesianism! Why not just call it macroeconomics, rather than tie it to an 80 year old long book?John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43002781555115455292014-12-04T20:52:13.200-06:002014-12-04T20:52:13.200-06:00"If old-time Keynesianism really does account..."If old-time Keynesianism really does account for the data, write it down and let's see." I did write it down John. Don't take PK's account of Old Keynesian Economics as gospel. Try expanding your horizon by reading <a href="http://www.amazon.com/Expectations-Employment-Prices-Roger-Farmer/dp/B006W40R10" rel="nofollow">this</a>.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63360921661783012912014-12-04T19:39:02.059-06:002014-12-04T19:39:02.059-06:00Where I work, at the St. Louis Fed, using an IS/LM...Where I work, at the St. Louis Fed, using an IS/LM model would invite ridicule. But the Board's FRB/US model is indeed an expanded IS/LM model - without the LM curve.Steve Williamsonhttps://www.blogger.com/profile/16629774961390533020noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59853519049412694012014-12-04T15:14:01.440-06:002014-12-04T15:14:01.440-06:00I'm not surprised in the least that IS/LM perv...I'm not surprised in the least that IS/LM pervades in the fiscal side of the economy, but it would be strange to see that it happens at the FED, IMF, OR OECD - which are run mainly by trained economist. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21434877957440041862014-12-04T14:49:42.763-06:002014-12-04T14:49:42.763-06:00I agree, John. NK-general equilibrium models are q...I agree, John. NK-general equilibrium models are quite different from IS-LM models. Take for instance Woodfords equilibrium in a recession, where changes in fiscal policy through taxes can have a positive or negative marginal effect on output, depending on wether the change in taxes is applied to corporations vs individuals. This is widely different from the predictions of an IS-LM model. <br /><br />Furthermore, even in the cases under which IS-LM logic might lead to the same recommendation as DSGE models, the causal relationships seldom are the same. <br /><br />Out of curiosity, how would you recommend macroeconomics should be taught at an undergraduate level? I remember my biggest frustration as a graduate student was learning "new" macroeconomics, since most of my training had been under static reasoning. However, the level of technical expertise required for DSGE models is unavailable to beginner and intermediate macro undergraduate students....Anonymoushttps://www.blogger.com/profile/02424903975032310404noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31518226681770581602014-12-04T14:33:18.106-06:002014-12-04T14:33:18.106-06:00I tend to agree with some other comments that you ...I tend to agree with some other comments that you were a overly harsh on Blinder in your last post. I often disagree with his conclusions but I've generally found him to be a serious and thoughtful analyst. In this case, it looks like he's guilty of repeating a quote that someone else took out of context. He was definitely being a little sloppy here, but he doesn't belong in the same category as someone like Krugman who is purposely misleads his readers by creating bogus straw man arguments and completely distorting other people's opinions.Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-28233827321960066572014-12-04T11:49:32.502-06:002014-12-04T11:49:32.502-06:00I think this is exactly right. The water is muddie...I think this is exactly right. The water is muddies because not only the same institutions, but often the same individuals, are engaged in both kinds of economics. But as intellectual projects they are entirely distinct. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-39686033071588503072014-12-04T10:16:32.324-06:002014-12-04T10:16:32.324-06:00Gali on Wages and Employment writes:
"All th...Gali on Wages and Employment writes:<br /><br />"All things considered, the findings of the present paper suggest that the<br />effectiveness of wage cuts in fighting unemployment and, more generally, the<br />desirability of more wage flexibility are propositions that one should not take for<br />granted. That lesson, central to Keynes’s General Theory, remains valid when examined<br />in the context of the New Keynesian framework."<br /><br />http://crei.cat/people/gali/jg2013_jeea.pdfAnonymousnoreply@blogger.com