By Jacques Drèze
Major students study various particular departures from common equilibrium conception 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 progress concept to the macroeconomic framework. different concerns tested are the results for macro-policy of latest study, together with Joseph Stiglitz's caution at the lost zeal for monetary marketplace liberalization which partially 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)
But the coordination of plans and price expectations in the absence of markets is a dark mystery, even darkened by the possibility of multiple equilibria. 17 Yet, for all I can tell, this is also the model underlying ‘new classical macroeconomics’. Relaxing somewhat my two precious assumptions can open the door to multiple sequences of equilibria. As stressed by Keynes, all agents hold expectations about each other’s expectations, now and later. There results an interdependence conducive to multiple, equally consistent equilibria: formal examples are easy to construct.
You will have gathered some of the reasons why my own preferred stance in macroeconomics is to be a sort of eclectic Keynesian in the short run and a sort of eclectic neoclassical in the long run. The question is whether that is merely a self-contradictory daydream. I gave two analogies earlier, neither of which seems quite right. Obviously you cannot be a Ptolemaic astronomer in the short run and a Copernican in the long run, not logically. Obviously you can be Newtonian at low velocities and Einsteinian at high velocities; every physicist does just that.
The economy adapts as well as it possibly can to those shocks, always trying to optimize – this time in terms of expected value – on behalf of the representative consumer. There is thus nothing pathological or remediable about observed fluctuations. Unforeseeable disturbances are by definition unforeseen; after one of them has happened, the economy is already making optimal adjustments, 24 The General Framework given its technology and the inter-temporal preferences of its single inhabitant or identical inhabitants.