Original article History of Economic Thought, Methodology, and Heterodox Approaches

New dynamic disequilibrium

Yuli Radev - UMG “St. Ivan Rilski”
Received: 10 Jun 2022
Revised:
Published:
Downloads: 0
Citations: 0
Issue 6/2015
JEL D50 В22 С62 Е20
DOI https://doi.org/10.56497/etj1560603

Abstract

The series of financial crises shook seriously the new consensus between neoclassical and new Keynesians on dynamic stochastic general equilibrium (DSGE) models. The criticisms were directed mainly to inadequate policy of monetary institutions and the inability of these models to foresee similar crises. In the ensuing debate on the future of macroeconomic theory two approaches were outlined: (1) Combination of alternative economic theories in new, free framework that ignores DSGE models; and (2) Critical analysis of the shortcomings of the DSGE models that enrich them with new ideas and methodological instruments. This article belongs to the second approach and presents DSGE models through the lens of new, non-Walrasian's version of the dynamic disequilibrium. Unlike neo-Walrasian disequilibrium, not the natural equilibrium prices of Smith and Marshall, but the natural rate of Wicksell are put in the role of a gravity center. Endogenezation of capital allows the model to involve the problem of intertemporal coordination, which is pathological for the economy and leads to financial crises.

References

Радев, Ю. (2015). Растежът и бизнес циклите - новият неокласически синтез. Икономически и социални алтернативи (работен доклад).

Akerlof, G., J. Yellen (1985). A Near-rational Model of the Business Cycle, with Wage and Price Intertia. - Quarterly Journal of Economics 100 (5), р. 823-838.

Baro, R., H. Grossman (1976). Money, Employment and Inflation. Cambridge, England: Cambridge University Press.

Barro, R., R. Gordon (1983). Rules, Discretion and Reputation in a Model of Monetary Policy. - Journal of Monetary Economics, 12, р. 101-121.

Blanchard, O. (1997). Comment (on Goodfriend and King). - NBER Macroeconomics Annual, 12, р. 289–293.

Blanchard, O. (2000). What Do We Know about Macroeconomics that Fisher and Wicksell Did Not? - Quarterly Journal of Economics, 115, р. 1375-1409.

Blanchard, O., J. Gaĺı (2005). Real Wage Rigidities and the New Keynesian Model. NBER Working Paper 11806.

Blanchard, O., N. Kiyotaki (1987). Monopolistic Competition and the Effects of Aggregate Demand. - American Economic Review, 77, р. 647-666.

Blinder, A. S. (1998). Central banking in theory and practice. MIT Press.

Boianovsky, M., H. M. Trautwein (2006). Wicksell after Woodford. - Journal of History of Economic Thought, 28 (2), р. 171–186.

Borio, C., P. Lowe (2002). Asset Prices, Financial and Monetary Stability: Exploring the Nexus. BIS Working Paper 114.

Caballero, R. (2010). Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome. - Journal of Economic Perspectives, 24 (4), р. 85-102.

Calvo, G. (1983). Staggered Prices in a Utility-Maximizing Framework. - Journal of Monetary Economics, 12 (3), р. 383-398.

Caresma, J. C., E. Gnan, D. Ritzberger-Gr̈unwald (2005). The Natural Rate of Interest. Concepts and Appraisal for the Euro Area. - Monetary Policy and the Economy, Australian National Bank (Q4).

Casares, M. (2002). Time to Build Approach in a Sticky Price, Sticky Wage Optimizing Model. European Central Bank, Working Paper Series 147.

Cass, D. and K. Shell (1983). Do Sunspots Matter? - Journal of Political Economy, Vol. 91, N 2, p. 193-227.

Cassel, G. (1932 [1918]). The Theory of Social Economy. New York: Harcourt, Brace.

Christiano, L. J., M. Eichenbaum, C. Evans (2001). Nominal rigidities and the dynamic effects of a shock to monetary policy. - Journal of Political Economy, 113, р. 1-45.

Christiano, L., C. Ilut, R. Motto, M. Rostagno (2010). Monetary Policy and Stock Market Booms. NBER Working Paper 16402.

Clarida, R., J. Galı, M. Gertler (1999). The Science of Monetary Policy: A New Keynesian Perspective. - Journal of Economic Literature, 37 (4), р. 1661-1707.

Clark, T., S. Kozicki (2005). Estimating Equilibrium Real Interest Rates in Real Time. - The North American Journal of Economics and Finance, 16 (3), р. 395-413.

Clower, R. (1965). The Keynesian counterrevolution: a theoretical appraisal. – In: Hahn, F. H. and F. P. R. Brechling (eds.). The Theory of Interest Rates, London: Macmillan, р. 103-125.

De Vroey, M. (2002). Equilibrium and Disequilibrium in Walrasian and Neo-walarasian Economics. - Journal of the History of Economic Thought, Taylor and Francis Journals, Vol. 24(4), р. 405-426.

De Vroey, M. (2004). Involuntary Unemployment: The Elusive Quest for a Theory. London: Routledge.

De Vroey, M., P. Malgrange (2011). The History of Macroeconomics from Keynes’s General Theory to the Present. Discussion Paper 2011028. Institut de Recherches Economiques et Sociales, Universit́e catholique de Louvain.

Donzelli, F. (1989). The Concept of Equilibrium in Neoclassical Economic Theory. An Enquiry into the Evolution of General Competitive Analysis from Walras to the Neo-Walrasian Research Programme. PhD Dissertation, University of Cambridge.

Fama, E. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. - Journal of Finance, 25 (2), р. 383-417.

Fischer, S. (1977). Long Term Contracts, Rational Expectations, and the Optimal Money Supply Rule. - Journal of Political Economy, 85, р. 191-205.

Francis, N., V. Ramey (2005). Is the Technology Driven Real Business Cycle Hypothesis dead? Shocks and Aggregate Fluctuations revisited. - Journal of Monetary Economics, 52 (8), р. 1379–1399.

Friedman, M. (1968). The Role of Monetary Policy. - American Economic Review, 58, р. 1-17.

Gaĺı, J., T. Monacelli (2002). Monetary Policy and Exchange Rate Volatility in a Small Open Economy. CEPR Discussion Paper 3346.

Goodfriend, M., R. King (1998). The New Neoclassical Synthesis and the Role of Monetary Policy. Working Paper 98-05, Federal Reserve Bank of Richmond.

Hayek, F. (1937). Economics and Knowledge. - Reprinted in Hayek, F. (ed.). (1948) Individualism and Economic Order, Chicago: University of Chicago Press, р. 33-56.

Hicks, J. (1937). Mr. Keynes and the Classics. – Econometrica, 5, р. 147-159.

Hicks, J. (1946 [1939]). Value and Capital, 2nd edition. Oxford: Clarendon Press.

Keynes, J. M. (1930). A Treatise on Money. Vol. 1: The Pure Theory of Money. Vol 2: The Applied Theory of Money. London: Macmillan.

Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.

King, R., S. Rebelo (2000). Resuscitating Real Business Cycles. NBER Working Paper 7534.

Krugman, P. (2009). How Did Economists Get It so Wrong? - New York Times Magazine, September 6.

Kydland, F. E., E. C. Prescott (1982). Time to Build and aggregate fluctuations. – Econometrica, 50 (6), р. 1345-1370.

Laidler, D. (2006). Woodford and Wicksell on „Interest and Prices”. The Place of the Pure Credit Economy in the Theory of Monetary Policy. - Journal of History of Economic Thought, 28, р. 151-160.

Laidler, D. (2009). Financial Stability, Monetarism and the Wicksell Connection. - Review of Economic Analysis, 1 (1), р. 60-79.

Laidler, D. (2011). Natural Hazards: Some Pitfalls on the Path to a Neutral Interest Rate. C.D. Howe Institute Backgrounder 140.

Leijonhufvud, A. (1968). On Keynesian Economics and the Economics of Keynes.Oxford: Oxford University Press.

Leijonhufvud, A. (1981). The Wicksell Connection: Variations on a Theme. - In: Information and Coordination. Essays in Macroeconomic Theory. New York: Oxford University Press, p. 131-202.

Leijonhufvud, A. (2007). Monetary and Financial Stability. - CEPR Policy Insight, 14.

Leijonhufvud, A. (2009). Macroeconomics and the Crisis: A Personal Appraisal. CEPR Discussion Paper 41.

Lindahl, E. (1930). Penningpolitikens medel. (tr. 1939: Part II, The Interest Rate and the Price Level. – In: Studies in the Theory of Money and Capital. London: Allen and Unwin). F̈orlagsaktiebolaget, Malm̈o.

Lucas, R. (1972). Expectations and the neutrality of money. - Journal of Economic Theory, 4 (2), р. 103-124.

Lucas, R. (1975). An equilibrium model of the business cycle. - Journal of Political Economy, 83, р. 1113-1144.

Lucas, R. (1976). Econometric policy evaluation: A critique. - Carnegie-Rochester Conference Series on Public Policy, 1 (1), р. 19-46.

Lucas, R. (2004). My Keynesian Education. - In: De Vroey, M., K. Hoover (eds.). The IS-LM Model: Its Rise, Fall and Strange Persistence. Durham: Duke University Press.

Lundberg, E. (1937). Studies in the Theory of Economic Expansion. London: P.S. King.

Malinvaud, E. (1984). Mass Unemployment. Oxford: Basil Blackwell.

Mandelbrot, B. (2005). Parallel cartoons of fractal models of finance. - Annals of Finance, 1 (2), р. 179-192.

Mankiw, G. (1985). Small Menu Costs and Large Business Cycle: A Macroeconomic Model of Monopoly. - Quarterly Journal of Economics, 100, р. 529-539.

Mankiw, G. (1989). Real Business Cycle: a New Keynesian Perspective. - Journal of Economic Perspectives, 3, р. 79-91.

Mankiw, G., D. Romer (1991). New Keynesian Economics. Cambridge, Massachussets: MIT Press.

Mazzocchi, R. (2013). Intertemporal Coordination Failure and Monetary Policy. DEM Discussion Paper Department of Economics and Management. University of Trento.

Mazzocchi, R. (2014). Scope and flaws of the new neoclassical synthesis. DEM Discussion Paper Department of Economics and Management. University of Trento.

Mehra, R. (2006). Recursive competitive equilibrium. NBER. Working Paper N 12433, August.

Orphanides, A., J. Williams (2006). Inflation Targeting under Imperfect Knowledge. CEPR Discussion Paper Series 5664.

Patinkin, D. (1965). Money, Interest and Prices. New York: Harper and Row.

Pesaran, M., A.Chudik (2011). Aggregation in Large Dynamic Panels. CESifo Working Paper Series 3346.

Radner, R. (1979). Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Price. - Econometrica, Vol. 47:3, р. 655-678.

Romer, D. (2000). Keynesian Macroeconomics without the LM curve. - Journal of Economic Perspectives, 14 (2), р. 149-169.

Samuelson, P. (1951). Principles and rules in modern fiscal policy: a neoclassical reformulation. - In: Waitzman, H. (ed.). Money, Trade and Economic Growth: Essays in Honor of John Henry Williams. Macmillan.

Sargent, T., N. Wallace (1975). Rational Expectations, the Optimal Monetary Instrument and the Optimal Money Supply Rule. - Journal of Political Economy, 83 (2), р. 241-254.

Solow, R. (1956). A contribution to the Theory of Economic Growth. - Quarterly Journal of Economics, 70 (1), р. 65-94.

Stadler, G. (1994). Real Business Cycle. - Journal of Economic Literature, 32, р. 1750-1783.

Stiglitz, J. (1991). Alternative Approaches to Macroeconomics: Methodological Issues and the New Keynesian Economics. NBER Working Paper 3580.

Sveen, T., L.Weinke (2004). New Perspectives on Capital and Sticky Prices. Norges Bank Working Paper 3.

Tamborini, R., H. M. Trautwein, R. Mazzocchi (2014). Wicksell, Keynes, and the New Neoclassical Synthesis: What can we learn for monetary policy? - Economic Notes, 43(2), р. 79-114.

Taylor, J. (1979). Staggered Wage Setting in a Macro Model. - American Economic Review, 69, р. 108-113.

Taylor, J. (1993). Discretion vs. Policy Rules in Theory and Practice. - Carnegie-Rochester Conference Series on Public Policy, 39, р. 195–214.

Van der Ploeg, F. (2005). Back to Keynes? CEPR, Discussion Paper 4897.

Wicksell, K. (1898). Geldzins und G ̈uterpreise. Eine Untersuchung ̈uber die den Tauschwert des Geldes bestimmenden Ursachen. (tr. 1936: Interest and Prices. A Study of the Causes Regulating the Value of Money. London: Macmillan). Jena: Gustav Fischer.

Woodford, M. (2003). Interest and Prices. Foundations of a Theory of Monetary Policy. Princeton: Princeton University Press.

Woodford, M. (2004). Inflation and Output Dynamics with Firm-Specific Investment (unpublished manuscript).

Woodford, M. (2005). Firm-Specific Capital and the New Keynesian Phillips Curve. - International Journal of Central Banking, 1 (2), р. 1-46.

Woodford, M. (2009). Convergence in Macroeconomics: Elements of the New Synthesis. - American Economic Review: Macroeconomics, 1, р. 267-279.

Zappia, C. (2001). Equilibrium and Disequilibrium Dynamics in the 1930s. - The Journal of the History of Economic Thought, 23 (1), р. 55-75.

Yun, T. (1996). Nominal Price Rigidity, Money Supply Endogeneity and Business Cycles. - Journal of Monetary Economics, 37, р. 345-370.

How to publish

Are you an author? Please read our publishing terms first.

Learn