The document argues that macroeconomics does not need microeconomic foundations, and instead it is microeconomics that needs foundations built from neuroscience and biology. It challenges five common arguments for microfoundations in macroeconomics. Specifically, it argues that 1) the Lucas critique does not necessarily require microfoundations, 2) there are no policy-invariant micro principles, 3) new Keynesian models are not truly founded on first principles, 4) there are no well-established micro principles given limitations of current choice theory, and 5) aggregate behavior cannot be built up from individual behavior in a straightforward way.
1) The ECB Governor found conventional economic models provided limited help during the financial crisis as they failed to predict or explain what was happening.
2) He welcomed inspiration from other disciplines like physics, engineering, psychology and biology to develop new tools to improve the robustness of their framework.
3) A multi-disciplinary group at UCL is developing approaches using narratives and emotions extracted from big data sources like news to provide early warnings and better understand economic uncertainties.
The Egg or the Chicken First? Saving-Growth Nexus in Lesothopaperpublications3
Abstract: The paper is motivated by the divergent views in literature pertaining to the direction of causality between savings and economic growth. Using the annual time series data for the period 1980 to 2010 the paper investigates the long-run and causal relationship between savings and economic growth in Lesotho using the ARDL bounds test approach. As per the cointegration results, there exists a long-run relationship between savings and economic growth in Lesotho. Granger causality results, however, indicate that savings precede and drive economic growth in Lesotho, both in the short-run and long-run, and not the other way round. Hence policies aimed at enhancing economic growth in Lesotho should stimulate and spur meaningful savings levels.
This paper investigates the link between forecast disparity and macroeconomic instability that results from the data revision of GDP and inflation in Japan. The recent Japanese case, which reflects the unconventional monetary policy conducted since 2013, is also examined. The empirical results show that such disparities do not cause economic instability; however, they have have done so after the unconventional and drastic monetary policy was conducted. On the other hand, exchange rates impacted economic stability for the total period. For the first part of the period under study (from 2000 to 2012), currency appreciation caused instability; however, for the more recent period, depreciation has caused such instability. Recently, macroeconomic instability has been linked with exchange rate movements.
This document summarizes a study that examines the causal relationships between stock prices and macroeconomic variables in Turkey from March 2001 to June 2010. The study uses the Granger causality test to analyze the relationships between the ISE-100 stock index and five macroeconomic variables: foreign exchange rate, gold price, money supply, industrial production index, and consumer price index. The results suggest there is unidirectional long-run causality from stock prices to the macroeconomic variables. This implies that stock prices can serve as a leading indicator for future movements in exchange rates, gold prices, money supply, industrial production, and inflation in Turkey.
This document presents a new FIR filter method for dating US recessions in real time using unemployment rate and employment trend index data. The filter, called the M-Coppock curve, is a modified version of the Coppock curve commonly used in equity markets. It is shown to peak near economic troughs of post-WWII recessions, allowing recessions to be called in real time. While current models from the Federal Reserve banks forecast low recession probabilities, the author's M-Coppock curve has been trending upward since 2014, indicating weakening labor market strength despite falling unemployment levels. The simple and intuitive M-Coppock curve approach aims to address issues with instability in other predictive models.
This document summarizes research examining the relationship between monetary policy and stock market returns using vector autoregression analysis. The results indicate:
1) Expansionary monetary policy shocks, as measured by negative shocks to the federal funds rate and positive shocks to nonborrowed reserves, are associated with subsequent increases in stock market returns across different industries and firm sizes.
2) Monetary policy shocks explain a significant portion of the forecast error variance in stock returns over a 24-month period, providing evidence that monetary policy has real effects on stock prices and returns.
3) The effects of monetary policy appear larger for smaller firms, supporting the hypothesis that monetary policy impacts firms' access to credit which affects small
This document reviews the literature on the relationship between monetary policy and economic growth. It begins with an overview of the evolution of theories from classical quantity theory to modern New Keynesian and New Consensus models. While theories differ in their assumptions around price flexibility and market clearing, most support some short-run effect of monetary policy on output. Empirically, studies find mixed results, with some supporting and others finding no relationship, depending on factors like country development and institutional quality. Overall, the literature suggests monetary policy can impact growth in developed markets with independent central banks, while the relationship is weaker in developing economies.
1) The ECB Governor found conventional economic models provided limited help during the financial crisis as they failed to predict or explain what was happening.
2) He welcomed inspiration from other disciplines like physics, engineering, psychology and biology to develop new tools to improve the robustness of their framework.
3) A multi-disciplinary group at UCL is developing approaches using narratives and emotions extracted from big data sources like news to provide early warnings and better understand economic uncertainties.
The Egg or the Chicken First? Saving-Growth Nexus in Lesothopaperpublications3
Abstract: The paper is motivated by the divergent views in literature pertaining to the direction of causality between savings and economic growth. Using the annual time series data for the period 1980 to 2010 the paper investigates the long-run and causal relationship between savings and economic growth in Lesotho using the ARDL bounds test approach. As per the cointegration results, there exists a long-run relationship between savings and economic growth in Lesotho. Granger causality results, however, indicate that savings precede and drive economic growth in Lesotho, both in the short-run and long-run, and not the other way round. Hence policies aimed at enhancing economic growth in Lesotho should stimulate and spur meaningful savings levels.
This paper investigates the link between forecast disparity and macroeconomic instability that results from the data revision of GDP and inflation in Japan. The recent Japanese case, which reflects the unconventional monetary policy conducted since 2013, is also examined. The empirical results show that such disparities do not cause economic instability; however, they have have done so after the unconventional and drastic monetary policy was conducted. On the other hand, exchange rates impacted economic stability for the total period. For the first part of the period under study (from 2000 to 2012), currency appreciation caused instability; however, for the more recent period, depreciation has caused such instability. Recently, macroeconomic instability has been linked with exchange rate movements.
This document summarizes a study that examines the causal relationships between stock prices and macroeconomic variables in Turkey from March 2001 to June 2010. The study uses the Granger causality test to analyze the relationships between the ISE-100 stock index and five macroeconomic variables: foreign exchange rate, gold price, money supply, industrial production index, and consumer price index. The results suggest there is unidirectional long-run causality from stock prices to the macroeconomic variables. This implies that stock prices can serve as a leading indicator for future movements in exchange rates, gold prices, money supply, industrial production, and inflation in Turkey.
This document presents a new FIR filter method for dating US recessions in real time using unemployment rate and employment trend index data. The filter, called the M-Coppock curve, is a modified version of the Coppock curve commonly used in equity markets. It is shown to peak near economic troughs of post-WWII recessions, allowing recessions to be called in real time. While current models from the Federal Reserve banks forecast low recession probabilities, the author's M-Coppock curve has been trending upward since 2014, indicating weakening labor market strength despite falling unemployment levels. The simple and intuitive M-Coppock curve approach aims to address issues with instability in other predictive models.
This document summarizes research examining the relationship between monetary policy and stock market returns using vector autoregression analysis. The results indicate:
1) Expansionary monetary policy shocks, as measured by negative shocks to the federal funds rate and positive shocks to nonborrowed reserves, are associated with subsequent increases in stock market returns across different industries and firm sizes.
2) Monetary policy shocks explain a significant portion of the forecast error variance in stock returns over a 24-month period, providing evidence that monetary policy has real effects on stock prices and returns.
3) The effects of monetary policy appear larger for smaller firms, supporting the hypothesis that monetary policy impacts firms' access to credit which affects small
This document reviews the literature on the relationship between monetary policy and economic growth. It begins with an overview of the evolution of theories from classical quantity theory to modern New Keynesian and New Consensus models. While theories differ in their assumptions around price flexibility and market clearing, most support some short-run effect of monetary policy on output. Empirically, studies find mixed results, with some supporting and others finding no relationship, depending on factors like country development and institutional quality. Overall, the literature suggests monetary policy can impact growth in developed markets with independent central banks, while the relationship is weaker in developing economies.
Causal Relationship between Stock market and Real Economy in India using Gran...sammysammysammy
This paper uses Granger Causality test to check whether Stock market (that are Sensex30 and Nifty50 Indices) affects Real GDP of India or vice versa happens. This is a research dissertation paper that I wrote for my Graduation degree.
This document provides an overview of different types of microeconomics analysis:
1) Micro statics refers to the equilibrium between economic variables at a single point in time. It shows the relationship between price and quantity at a moment when supply and demand curves intersect.
2) Micro dynamics analyzes how an initial equilibrium breaks down and a new equilibrium is established over time as prices and quantities change. It shows the disequilibrium process.
3) Comparative micro statics compares different equilibriums at different points in time as conditions change, but does not analyze the process of moving between equilibriums. It is concerned with explaining different equilibrium states rather than the transition between them.
This document discusses modeling the relationship between state-level commercial bank failure rates and regional economic indicators using regression analysis. It provides background on the recent rise in bank failures and reviews literature examining the impact of economic conditions on individual bank performance and survival. The study aims to test whether odds of bank failure in a state are dependent on seven regional economic indicators like GDP, unemployment, housing prices, and employment levels. If validated, the regression model could provide insight into bank-region interdependence and inform regulatory policy.
Econometrics is the integration of economics, mathematics, and statistics to provide numerical values for the parameters of economic relationships and verify economic theories using real-world data. It differs from mathematical economics and statistics in that it accounts for random elements in economic relationships and provides quantitative measurements. An econometric model specifies economic relationships mathematically and estimates coefficients using econometric techniques. A good model has theoretical plausibility, explanatory ability, accurate parameter estimates, forecasting ability, and simplicity. The main goals of econometrics are testing economic theories, informing policymaking, and forecasting.
1. Econometrics uses statistical methods to estimate economic relationships, test economic theories, and evaluate policies. It builds mathematical and statistical models to represent economic behavior using data.
2. A consumption function model relates consumption (C) to income (Y) as C = a + bY, where a and b are parameters estimated using data. The model includes an error term to account for other influences not included.
3. Estimating the consumption function parameters using data allows testing hypotheses about marginal propensity to consume and forecasting future consumption based on the model. Government can also use such models for policymaking.
The document analyzes whether the yield curve, the difference between long-term and short-term interest rates, can still predict U.S. economic activity. It finds that while the yield curve spread has historically predicted output growth and recessions, its predictive power has declined since the 1980s. Structural breakpoints are found around 1985 and 2008 when testing the linear regression model. However, the yield curve still retains its ability to predict recessions based on a probit model analyzing data from 1955 to 2014. The document reviews theories on how the yield curve spread can indicate future economic conditions and output growth.
The Causal Analysis of the Relationship between Inflation and Output Gap in T...inventionjournals
The purpose of the paper is to study dynamic relationships between the inflation and output gap by using Granger causality, Impulse response and variance decompositions analysis within VECM framework for the quarterly data over the first period of 2003 and second period of 2016. The results of the study indicate that the output gap Granger cause the inflation in Turkey both in short-and long-runs. Also, sign of the causality is negative and same causal relationships between two variables hold beyond the sample period. The results should be taken as an evidence of the conclusion that the output gap has important implications for the CBRT's monetary policy.
Analisis of housing bubble in USA, addresing from data panel model. Faculty of Economics and Centre for International Macroeconomics and Finance (CIMF).
University of Cambridge, Cambridge, CB3 9DD, UK
Multi-market models allow estimation of policy impacts through a system of supply and demand equations for closely linked markets. They capture direct effects as well as indirect effects through price and quantity changes in these markets. This provides a more accurate assessment than single-market models or general equilibrium models, which model all markets. The method requires data on income, prices, and consumption to parameterize demand and supply and model how policy changes propagate through the selected markets. It has been applied particularly to agricultural policies where food markets are linked. However, multi-market models only consider indirect effects in the modeled markets and ignore linkages elsewhere.
Uno Assignment Help| Homework Help| Essay Writing Help | Help with Assignmentuno Assignment Help
Uno Assignment Help is the best online assignment help to students pursuing courses in school colleges and universities of USA, Australia, UK, Canada and New Zealand. Our in-house experts provide best quality homework help. If you strive for individual attention and customized help in any assignment, homework, coursework, essay, term paper or research work and report writing; our team of talented experts is here to assist you with high quality solution. Whether it is an urgent assignment help, homework help, online tutoring we ensure reasonable price and timely delivery of every order you place with us.
This document summarizes a research paper examining the relationship between unemployment rates and violence during labor strikes. The paper includes a literature review summarizing past research on factors that influence strike violence. It also describes the measurement of variables, data collection methodology, and potential sources of selection bias. An analysis of the data found no correlation between state unemployment rates and violence in labor strikes based on strike-level data from 1995-2003.
This document analyzes the long-run relationship between money supply, income, and price level in Pakistan from 1972 to 2003 using quarterly data. It applies autoregressive distributed lag (ARDL) and error correction model (ECM) techniques to examine this relationship. Previous studies on this topic in Pakistan have limitations like using nominal GDP and separation of East Pakistan. This study aims to add to the literature by using a recent data set and the ARDL approach, which allows for variables of different orders of integration and derives short-run dynamics from the long-run relationship. The results will help policymakers understand the relationship between these key macroeconomic variables and their impact on economic growth in Pakistan.
Stock market volatility and macroeconomic variables volatility in nigeria an ...Alexander Decker
This document summarizes a study that examines the relationship between stock market volatility and macroeconomic variable volatility in Nigeria from 1986 to 2010. The study uses an EGARCH model to estimate volatility and a LA-VAR Granger causality test to analyze the nexus between stock market volatility and macroeconomic variables. The results found evidence of a bi-causal relationship between stock market volatility and real GDP volatility, and no causal relationship between stock market volatility and interest rate or inflation rate volatility.
This document provides an introduction to macroeconomics. It defines macroeconomics as the study of factors that determine aggregate production, employment, prices and their changes over time in an economy. Key aspects covered include the classical and Keynesian views of macroeconomics, macroeconomic variables, models and approaches used in analysis. Important macroeconomic issues discussed are achieving economic growth, preventing business cycles, controlling inflation, unemployment, budget deficits, and managing international economic issues.
Association between gdp deflators of worldsarah101
This study examined the relationship between GDP deflators of various countries. Data on GDP deflators from 15 developed and developing countries over 30 years was collected from the World Bank and analyzed using correlation. The results showed GDP deflators have strong correlations between some country pairs like US-Canada, but weaker or no correlations for others. The hypothesis that there is an association between worldwide GDP deflators was accepted. The conclusion discusses how macroeconomic shocks and policies can impact a country's GDP deflator differently based on their economic situation. Future research could focus on specific regions and examine multiple influencing factors.
Apoorva Javadekar - Conditional Correlations of Macro Variables and Implica...Apoorva Javadekar
This ppt By Apoorva Javadekar is all about Understanding the structure of the Cross Country Correlation for Macro Variables: and Asset Pricing and Risk Sharing Implications
This document outlines the key topics to be covered in an introductory econometrics course, including definitions, applications, and illustrations of econometrics. The course will define econometrics and statistics, explore how econometrics is used to test economic theories, estimate relationships, and make policy recommendations. Examples of applying econometrics to questions around class size and grades, racial discrimination in mortgage lending, taxes and cigarette smoking, and forecasting inflation will also be discussed to illustrate distinguishing econometrics from general statistics.
El fútbol americano se originó a mediados del siglo XIX en Inglaterra a partir de versiones primitivas de rugby y fútbol. Se desarrolló principalmente en Estados Unidos, donde es muy popular, especialmente en las universidades. En Colombia la Federación Colombiana de Fútbol Americano regula este deporte y actualmente cuenta con 14 equipos divididos en dos conferencias.
Este documento regula la relación laboral especial de los abogados que prestan servicios en despachos de abogados en España. Establece que los abogados tendrán derechos como trabajadores y deberes en el ejercicio de su actividad profesional. También define los sujetos de esta relación laboral especial y especifica los derechos de los titulares de los despachos en el ejercicio de su poder de dirección sobre los abogados.
Causal Relationship between Stock market and Real Economy in India using Gran...sammysammysammy
This paper uses Granger Causality test to check whether Stock market (that are Sensex30 and Nifty50 Indices) affects Real GDP of India or vice versa happens. This is a research dissertation paper that I wrote for my Graduation degree.
This document provides an overview of different types of microeconomics analysis:
1) Micro statics refers to the equilibrium between economic variables at a single point in time. It shows the relationship between price and quantity at a moment when supply and demand curves intersect.
2) Micro dynamics analyzes how an initial equilibrium breaks down and a new equilibrium is established over time as prices and quantities change. It shows the disequilibrium process.
3) Comparative micro statics compares different equilibriums at different points in time as conditions change, but does not analyze the process of moving between equilibriums. It is concerned with explaining different equilibrium states rather than the transition between them.
This document discusses modeling the relationship between state-level commercial bank failure rates and regional economic indicators using regression analysis. It provides background on the recent rise in bank failures and reviews literature examining the impact of economic conditions on individual bank performance and survival. The study aims to test whether odds of bank failure in a state are dependent on seven regional economic indicators like GDP, unemployment, housing prices, and employment levels. If validated, the regression model could provide insight into bank-region interdependence and inform regulatory policy.
Econometrics is the integration of economics, mathematics, and statistics to provide numerical values for the parameters of economic relationships and verify economic theories using real-world data. It differs from mathematical economics and statistics in that it accounts for random elements in economic relationships and provides quantitative measurements. An econometric model specifies economic relationships mathematically and estimates coefficients using econometric techniques. A good model has theoretical plausibility, explanatory ability, accurate parameter estimates, forecasting ability, and simplicity. The main goals of econometrics are testing economic theories, informing policymaking, and forecasting.
1. Econometrics uses statistical methods to estimate economic relationships, test economic theories, and evaluate policies. It builds mathematical and statistical models to represent economic behavior using data.
2. A consumption function model relates consumption (C) to income (Y) as C = a + bY, where a and b are parameters estimated using data. The model includes an error term to account for other influences not included.
3. Estimating the consumption function parameters using data allows testing hypotheses about marginal propensity to consume and forecasting future consumption based on the model. Government can also use such models for policymaking.
The document analyzes whether the yield curve, the difference between long-term and short-term interest rates, can still predict U.S. economic activity. It finds that while the yield curve spread has historically predicted output growth and recessions, its predictive power has declined since the 1980s. Structural breakpoints are found around 1985 and 2008 when testing the linear regression model. However, the yield curve still retains its ability to predict recessions based on a probit model analyzing data from 1955 to 2014. The document reviews theories on how the yield curve spread can indicate future economic conditions and output growth.
The Causal Analysis of the Relationship between Inflation and Output Gap in T...inventionjournals
The purpose of the paper is to study dynamic relationships between the inflation and output gap by using Granger causality, Impulse response and variance decompositions analysis within VECM framework for the quarterly data over the first period of 2003 and second period of 2016. The results of the study indicate that the output gap Granger cause the inflation in Turkey both in short-and long-runs. Also, sign of the causality is negative and same causal relationships between two variables hold beyond the sample period. The results should be taken as an evidence of the conclusion that the output gap has important implications for the CBRT's monetary policy.
Analisis of housing bubble in USA, addresing from data panel model. Faculty of Economics and Centre for International Macroeconomics and Finance (CIMF).
University of Cambridge, Cambridge, CB3 9DD, UK
Multi-market models allow estimation of policy impacts through a system of supply and demand equations for closely linked markets. They capture direct effects as well as indirect effects through price and quantity changes in these markets. This provides a more accurate assessment than single-market models or general equilibrium models, which model all markets. The method requires data on income, prices, and consumption to parameterize demand and supply and model how policy changes propagate through the selected markets. It has been applied particularly to agricultural policies where food markets are linked. However, multi-market models only consider indirect effects in the modeled markets and ignore linkages elsewhere.
Uno Assignment Help| Homework Help| Essay Writing Help | Help with Assignmentuno Assignment Help
Uno Assignment Help is the best online assignment help to students pursuing courses in school colleges and universities of USA, Australia, UK, Canada and New Zealand. Our in-house experts provide best quality homework help. If you strive for individual attention and customized help in any assignment, homework, coursework, essay, term paper or research work and report writing; our team of talented experts is here to assist you with high quality solution. Whether it is an urgent assignment help, homework help, online tutoring we ensure reasonable price and timely delivery of every order you place with us.
This document summarizes a research paper examining the relationship between unemployment rates and violence during labor strikes. The paper includes a literature review summarizing past research on factors that influence strike violence. It also describes the measurement of variables, data collection methodology, and potential sources of selection bias. An analysis of the data found no correlation between state unemployment rates and violence in labor strikes based on strike-level data from 1995-2003.
This document analyzes the long-run relationship between money supply, income, and price level in Pakistan from 1972 to 2003 using quarterly data. It applies autoregressive distributed lag (ARDL) and error correction model (ECM) techniques to examine this relationship. Previous studies on this topic in Pakistan have limitations like using nominal GDP and separation of East Pakistan. This study aims to add to the literature by using a recent data set and the ARDL approach, which allows for variables of different orders of integration and derives short-run dynamics from the long-run relationship. The results will help policymakers understand the relationship between these key macroeconomic variables and their impact on economic growth in Pakistan.
Stock market volatility and macroeconomic variables volatility in nigeria an ...Alexander Decker
This document summarizes a study that examines the relationship between stock market volatility and macroeconomic variable volatility in Nigeria from 1986 to 2010. The study uses an EGARCH model to estimate volatility and a LA-VAR Granger causality test to analyze the nexus between stock market volatility and macroeconomic variables. The results found evidence of a bi-causal relationship between stock market volatility and real GDP volatility, and no causal relationship between stock market volatility and interest rate or inflation rate volatility.
This document provides an introduction to macroeconomics. It defines macroeconomics as the study of factors that determine aggregate production, employment, prices and their changes over time in an economy. Key aspects covered include the classical and Keynesian views of macroeconomics, macroeconomic variables, models and approaches used in analysis. Important macroeconomic issues discussed are achieving economic growth, preventing business cycles, controlling inflation, unemployment, budget deficits, and managing international economic issues.
Association between gdp deflators of worldsarah101
This study examined the relationship between GDP deflators of various countries. Data on GDP deflators from 15 developed and developing countries over 30 years was collected from the World Bank and analyzed using correlation. The results showed GDP deflators have strong correlations between some country pairs like US-Canada, but weaker or no correlations for others. The hypothesis that there is an association between worldwide GDP deflators was accepted. The conclusion discusses how macroeconomic shocks and policies can impact a country's GDP deflator differently based on their economic situation. Future research could focus on specific regions and examine multiple influencing factors.
Apoorva Javadekar - Conditional Correlations of Macro Variables and Implica...Apoorva Javadekar
This ppt By Apoorva Javadekar is all about Understanding the structure of the Cross Country Correlation for Macro Variables: and Asset Pricing and Risk Sharing Implications
This document outlines the key topics to be covered in an introductory econometrics course, including definitions, applications, and illustrations of econometrics. The course will define econometrics and statistics, explore how econometrics is used to test economic theories, estimate relationships, and make policy recommendations. Examples of applying econometrics to questions around class size and grades, racial discrimination in mortgage lending, taxes and cigarette smoking, and forecasting inflation will also be discussed to illustrate distinguishing econometrics from general statistics.
El fútbol americano se originó a mediados del siglo XIX en Inglaterra a partir de versiones primitivas de rugby y fútbol. Se desarrolló principalmente en Estados Unidos, donde es muy popular, especialmente en las universidades. En Colombia la Federación Colombiana de Fútbol Americano regula este deporte y actualmente cuenta con 14 equipos divididos en dos conferencias.
Este documento regula la relación laboral especial de los abogados que prestan servicios en despachos de abogados en España. Establece que los abogados tendrán derechos como trabajadores y deberes en el ejercicio de su actividad profesional. También define los sujetos de esta relación laboral especial y especifica los derechos de los titulares de los despachos en el ejercicio de su poder de dirección sobre los abogados.
El documento es un contrato de trabajo entre Pedro Lobato Fernández, propietario de un taller mecánico en Rosario, Argentina, y Bladimir Solano Mejía, de Perú. El contrato estipula que Lobato cubrirá los gastos de viaje de Solano desde Perú hasta Argentina, y le proporcionará alojamiento y comida. A cambio, Solano trabajará en el taller mecánico por seis meses a un sueldo de 4,000 pesos argentinos por mes, que se pagarán quincenalmente y el resto los primeros días
contrato de trabajo del futbolista profesional en ColombiaMayron Quintero
quisiera compartir con ustedes esta pequeña investigación que aun sigo adelantando sobre el contrato de trabajo del futbolista profesional en Colombia, sus características y una perspectiva de derecho comparado...
Si eres un estudioso de las formas de entrenamiento en el fútbol, deberías leer esto. Elaborado por mi, para todos vosotros. "Hacer fútbol, aprendiendo fútbol"
Este documento es un contrato de mutuo con interés entre dos partes. La primera parte se compromete a entregar una cantidad de dinero a la segunda parte. A cambio, la segunda parte pagará intereses por el préstamo en la casa de la primera parte en fechas específicas. El contrato estipula las consecuencias de incumplimiento de pago, como una penalización monetaria. Dos testigos presencian y verifican la identidad y capacidad de las partes para celebrar legalmente este acuerdo.
This document summarizes a paper that analyzes whether central banks should modify their interest rate policy rules (like the Taylor rule) to account for credit spreads or credit volumes. The paper uses a New Keynesian economic model modified to include financial frictions like heterogeneous households and credit markets. It finds that adjusting the policy rate in response to changes in credit spreads or volumes can improve outcomes in response to financial disturbances, but such adjustments may not help or could hurt in response to other disturbance types. The paper concludes by discussing the model and outlining the analysis that will be conducted using the model to evaluate modified policy rules.
This document summarizes a journal article about modeling economic growth under uncertainty. It introduces a one-sector stochastic growth model where production depends on capital, labor, and a random variable. It maximizes the expected discounted utility of consumption to determine optimal policies. The model generalizes previous deterministic growth models by incorporating uncertainty. It analyzes the long-run properties of the stochastic growth process, showing properties like the existence of a unique stationary distribution are analogous to the steady state in deterministic models. The techniques used differ from previous work and help unify different approaches to modeling growth under uncertainty.
The time consistency of economic policy and the driving forces behind busines...accounting2010
1. Kydland and Prescott uncovered an inherent problem with discretionary economic policymaking known as the time consistency problem. Without the ability to commit to future policies, governments are unable to implement optimal policies due to rational expectations.
2. They showed that discretionary monetary and fiscal policy results in lower welfare than if governments could commit to future policies. This shifted analysis to designing institutions to mitigate the time consistency problem, like reforms to central bank independence.
3. Kydland and Prescott also demonstrated that technology-driven supply shocks can generate realistic business cycles without market failures. This established a new paradigm in macroeconomics based on microeconomic foundations and rational expectations.
The role of positive and normative economics in scholarly researchDr. Vignes Gopal
This document discusses the roles of positive and normative economics in scholarly research. It begins by explaining that positive economics refers to objective and factual analyses of what is, while normative economics involves more subjective policy-based and value-based analyses of what ought to be. The document then provides several examples to illustrate the differences between positive and normative statements and analyses. It argues that both approaches are important in framing research findings and that normative economics can help identify gaps in positive economic theories and realities.
This document analyzes structural changes in the Brazilian industry from 1982-1997, a period of economic and institutional uncertainty. It explores how macroeconomic changes interacted with firm behaviors and industrial structure at the micro level. The analysis focuses on how firms adapted strategies in areas like sales, finance, production and investment to develop flexibility in responding to uncertainty. While uncertainties decreased after 1994, the analysis suggests firms developed in different ways and uncertainty still influences industry composition.
This document discusses a study that uses a mixed logit model to predict firm financial distress. Mixed logit is an advanced discrete choice modeling technique that relaxes assumptions of standard logit models. It allows for observed and unobserved heterogeneity across firms. The study aims to demonstrate the empirical usefulness of mixed logit in financial distress prediction by comparing its performance to standard logit models. Results and out-of-sample forecasts show mixed logit outperforms standard logit models by significant margins in predicting firm financial distress.
The document summarizes a study that uses a structural vector autoregressive (SVAR) model to estimate the impact of unconventional monetary policy on macroeconomic variables in the UK. The study focuses on the bank lending channel as a possible transmission mechanism. The results from the baseline SVAR model show that unconventional monetary policy can generate inflation and increase output, but the effects are small and short-lived. However, the results are not robust for output based on sensitivity analysis. The study also does not find strong evidence that the bank lending channel is a significant transmission mechanism for unconventional monetary policy.
Here are the key points about involuntary unemployment in developing countries like Bangladesh:
- Unemployment is chronic and long-term in nature, unlike cyclical unemployment in developed nations.
- It is caused by lack of capital, land and other resources relative to the large population and workforce. There is a surplus of labor that cannot be absorbed due to these constraints.
- Keynesian effective demand theory does not fully explain unemployment in these countries as they have never developed strong industrial capacity and demand.
- Marxian theory of unemployment due to lack of capital is more relevant. The Harrod-Domar model also emphasizes the pivotal role of capital accumulation in enabling growth of output, employment and absorbing surplus labor.
-
This chapter reviews literature on macroeconomic modeling and forecasting. It discusses the development of structural models based on Keynesian theory from the 1930s-1970s, which were popularized by the Cowles Commission. These models included consumption, investment, income, and price equations. The chapter evaluates the forecasting performance of early large-scale models, finding most errors were reasonable out to 8 quarters ahead. However, models struggled during the economic turbulence of the 1970s, missing turning points. While structural models have conceptual ties to theory, atheoretical models may serve as an alternative when assessing large shocks, as economic cycles are not necessarily systematic.
Economics needs a scientific revolution Nature Oct 2008Conor McCabe
The document discusses shortcomings in economics compared to physics. It argues that economists rely too heavily on untested assumptions that are treated as axioms rather than being subject to empirical testing. This has led to flawed models being used to develop complex financial products, contributing to economic crises. In contrast, physicists are more skeptical of models and subject them to rigorous empirical testing, updating or replacing models as needed. The document calls for economics to undergo a scientific revolution, becoming more like physics in empirically testing assumptions and focusing on data over perfect theoretical models. Regulations also need to improve to better scrutinize new financial products.
Sammy kemboi chepkilot a review kydland and prescott (1977) rules rather tha...CPA Sammy Kemboi Chepkilot
This paper summarizes and reviews the 1977 paper by Kydland and Prescott titled "Rules Rather than Discretion: The Inconsistency of Optimal Plans." The paper established that some policymaking institutions are better than others and identified desirable institutional properties for effective monetary policy decision making. Kydland and Prescott found that optimal policy rules determined at one point in time may fail to be self-enforcing later and incentivize deviation, lacking credibility. They determined that commitment to policy rules is preferable to discretion and improves credibility by making it difficult to change policies. The paper had significant implications for the design of policymaking institutions and understanding the relationship between policy choices and private sector expectations.
Klomp de haan-jes_2010_inflation_and_cbigabrielsteven
1) The document analyzes 59 studies that examine the relationship between central bank independence (CBI) and inflation.
2) It finds evidence of publication bias, but also finds a significant negative relationship between CBI and inflation on average.
3) Key factors associated with stronger relationships in the studies include a focus on OECD countries, inclusion of data from the 1970s, and use of bivariate regressions or models including labor markets. Differences in CBI indicators did not significantly impact results.
Study of Economics _ Microeconomics and Macroeconomics.pdfabhishekverma489234
To get a deep understanding of the various concepts of Economics, a student should be able to clearly distinguish between the concepts of Macroeconomics and Microeconomics. In this blog, we have tried our best to make it simple for you to understand the concepts of economics and the difference between microeconomics and macroeconomics.
This document discusses the concept of long-run position in a capitalist economy and examines perspectives from Post-Keynesian and Neo-Ricardian schools of thought. It argues that competition is a dynamic process that creates both equilibrium and disequilibrium forces. While competition equalizes profit rates across sectors, it also drives capitalists to constantly improve production and try to outpace rivals. The long-run position should not be seen as a static equilibrium, but rather the center of gravity resulting from these dynamic competitive forces. Investment plays a key role in determining long-run positions by changing the economy's capacity level over time through capital accumulation. Short-run fluctuations in demand are accommodated by changes in capacity utilization, while long-
Macroeconomics studies aggregate economic variables of an entire economy. It analyzes factors like national income, employment levels, inflation rates, and economic growth. Macroeconomics developed after John Maynard Keynes published his influential work on unemployment and effective demand. It examines unemployment, inflation, business cycles, economic growth, and international trade at the national level. Understanding macroeconomic trends is important for business decision-making because business environment is impacted by changes in macroeconomic variables and government policies.
This paper provides a review of the empirical macroeconomic model (EMMA) built for forecasting purposes at the Finnish Labour Institute for Economic Research. The model is quite small, consisting of 71 endogenous and 70 exogenous variables. The number of behavioural equations is 15. The basis of the model is Keynesian, although the model has some novel properties. They are the treatment of the supply side and prices that follow the routes of the neoclassical synthesis. The parameters of the model are estimated from quarterly data that cover the years 1990–2005. The model also contains a Kalman-filtered variable to control the deep recession in Finland at the beginning of the ’90s. This special feature brings the model closer to the new calibrated models.
The document summarizes key concepts in economics. It discusses how economists use the scientific method of observation, theory development, and testing theories with data. It introduces two common economic models: the circular flow diagram which shows the flow of goods and services between households and firms, and the production possibilities frontier which shows the tradeoffs in producing different quantities of goods given limited resources. It distinguishes between microeconomics which studies household and firm decision-making, and macroeconomics which studies economy-wide phenomena. Economists contribute as policy advisors, making positive statements about what is and normative statements about what ought to be. Economists sometimes disagree due to differences in scientific judgments or values.
This document summarizes a research paper that develops a dynamic stochastic general equilibrium (DSGE) model to explain how monetary policy affects risk in financial markets and the macroeconomy. The key feature of the model is that asset and goods markets are segmented because it is costly for households to transfer funds between the markets. The model generates endogenous movements in risk as the fraction of households that rebalance their portfolios varies over time in response to real and monetary shocks. Simulation results indicate the model can account for evidence that monetary policy easing reduces equity premiums and helps explain the response of stock prices to monetary shocks.
The standard Keynesian view of fiscal policy holds that in short-run fiscal adjustments (expansions) reduce (stimulate) aggregate demand and due to sticky wages, prices or other market rigidities, these demand shifts affect the factors of production and output. These conventional predictions have been challenged by the observation of episodes of perverse effects of fiscal policy – so called “non-Keynesian” effects. This paper reassess the short-run consequences of fiscal policy. We provide evidence that consumption reacts in a non-linear fashion to discretionary fiscal policy changes. The results of our estimations show that households tend to behave in non-Keynesian manner when the fiscal situation of a country is bad, i.e. when public debt or fiscal deficit is large, while Keynesian behavior dominates, when the fiscal situation is sound. Our results suggest that, similarly to OECD countries, consumption function does not react in linear fashion to changes in fiscal policy also in transition economies.
Authored by: Piotr Bujak, Joanna Siwinska-Gorzelak
Published in 2003
Los emprendimientos campesinos frente al covidPAD Ancash
El documento describe un emprendimiento agrícola ecológico llamado "Organic Shop" en Macashca, Perú. Los pequeños agricultores producen hortalizas de forma sostenible bajo invernadero para alimentar a las poblaciones urbanas. Inicialmente, los intermediarios pagaban precios bajos a los agricultores, pero ahora el emprendimiento vende directamente a los consumidores de forma rentable. El autor argumenta que estos emprendimientos merecen más apoyo del gobierno para superar la crisis actual de forma justa y sostenible.
Los gobiernos regionales de varias regiones del Perú han anunciado planes para reactivar sus economías afectadas por la pandemia de COVID-19. Estos planes se centran en sectores como la agricultura, la minería, la construcción y el turismo, e incluyen medidas como la promoción de la asociatividad empresarial, la inversión en infraestructura y el apoyo a la pequeña y microempresa. Sin embargo, se requiere más detalles y precisión en la implementación de estos planes para que logren reactivar efectivamente las economías
This document summarizes a study that examines the welfare effects of calorie menu labeling, which is a policy that requires restaurants to display calorie information on menus. The study finds that calorie menu labeling can act as an "emotional tax" by evoking negative emotions in some people, but not others. Specifically, it emotionally taxes people with low self-control over eating, while emotionally subsidizing those with higher self-control. However, people with lower self-control may experience less benefit from adjusting their high calorie consumption in response to the menu labels. Overall, the study finds that calorie menu labeling has a positive effect on consumer welfare on average, though its effects vary significantly between individuals - some value it positively while others
Este documento designa nuevos representantes del Ministerio de Defensa ante la Comisión Multisectorial encargada de realizar el seguimiento de las acciones del gobierno frente a la minería ilegal y el proceso de formalización. Deja sin efecto una resolución ministerial anterior y nombra al Contralmirante AP Luis Enrique Martín de la Flor Rivero como titular y al Coronel EP Fidel Enrique Bocanegra Burga como alterno de dicha comisión.
El economista Xavier Sala i Martín habló sobre los errores cometidos en la cooperación para el desarrollo en África usando el ejemplo de su novia blanca que repartió caramelos entre niños africanos. Esto distorsionó la economía local, generó violencia entre los niños y no resolvió los problemas reales como falta de medicinas. La lección es que la cooperación debe entender mejor las necesidades locales en lugar de soluciones superficiales. Dos empresas catalanas fueron premiadas por su éxito exportando más del 80% de su producción a mercados
La abdicación de la izquierda dani rodrikPAD Ancash
El autor argumenta que la izquierda ha fallado en presentar una alternativa clara a la globalización y al capitalismo del siglo XXI. Mientras que los políticos de derecha han explotado el resentimiento hacia la inmigración y la globalización, la izquierda no ha propuesto ideas económicas sólidas más allá de políticas de bienestar. Además, tecnócratas de izquierda promovieron la globalización financiera en lugar de desarrollar una alternativa. Sin embargo, ahora existen propuestas académicas sobre reformas banc
Este documento resume las teorías neoliberales sobre el estado. Explica que el neoliberalismo surge de las ideas de Friedman y Buchanan y se basa en 5 principios como la promoción del bienestar a través de la libertad individual. Critica las teorías de desarrollo económico y propone que el estado debe limitarse a proveer servicios públicos esenciales de forma regulada, sin intervenir discrecionalmente en la economía de mercado.
Este documento trata sobre la segmentación de mercados y el comportamiento del consumidor. Se define la segmentación como el proceso de dividir el mercado en subgrupos homogéneos para satisfacer sus necesidades de forma efectiva. Se describen diferentes enfoques de segmentación como la segmentación a priori o a posteriori. También se explican las fases del proceso de segmentación como la elección de criterios y el mercado objetivo. Finalmente, se analiza el comportamiento del consumidor y factores que lo influyen como las variables internas y externas.
Este documento compara los costos financieros de varias entidades bancarias en la ciudad de Huaraz. Presenta información sobre 16 entidades visitadas, incluyendo su descripción, productos, servicios y datos financieros clave como tasas de interés. La información recopilada sugiere que las tasas efectivas anuales varían entre entidades, siendo la más alta de Scotiabank a 49.4055% y la más baja de BBVA a 30%.
El documento resume la situación económica, social y de inversiones en la región de Ancash, Perú. La economía de Ancash se ha diversificado hacia los servicios y la minería, aunque la agricultura sigue siendo importante. La pobreza afecta al 38% de la población. Se necesitan mayores inversiones en infraestructura básica, educación y salud para reducir la pobreza y mejorar la competitividad de la región. Las inversiones mineras privadas han aumentado recientemente, impulsando el crecimiento económico.
“DISEÑO DE INDICADORES PARA EL MONITOREO Y EVALUACIÓN DE LA GESTIÓN PUBLICA"PAD Ancash
Este documento trata sobre el diseño de indicadores para el monitoreo y evaluación en la gestión pública. El objetivo general del taller es brindar conocimientos teóricos y habilidades metodológicas para el diseño de sistemas de monitoreo y evaluación articulados a planes estratégicos. Los objetivos específicos incluyen construir indicadores de impacto, efecto y producto; contar con conocimientos para el diseño de sistemas de monitoreo y evaluación; y formular matrices e identificar actores claves. El contenido temático
CIDESA es una empresa consultora peruana con sede en Huaraz que ofrece servicios de consultoría en diversas áreas como economía, finanzas, negocios y gestión. Cuenta con un equipo multidisciplinario de profesionales con experiencia y ofrece servicios de consultoría a instituciones públicas y privadas utilizando metodologías de transferencia de conocimiento y trabajo conjunto.
El documento habla de la soledad de Jesús en su cumpleaños y en Navidad, cuando la gente celebra sin recordarlo a él. Jesús invita a la persona a creer en él y a asistir a la gran fiesta que está preparando en el cielo.
Este documento discute cómo la crisis financiera global ha cuestionado el trabajo de los macroeconomistas y la utilidad de sus teorías. Argumenta que aunque los modelos económicos no pueden capturar toda la complejidad del mundo real, siguen siendo útiles para interpretar la realidad económica y proponer recomendaciones de política. También señala que aunque las crisis son impredecibles, es necesario continuar buscando advertencias tempranas y políticas para prevenirlas y mitigar su propagación. Finalmente, enfatiza que aunque el shock inicial de esta crisis
PRESENTACIÓN ORGANIZACIÓN Y NORMAS DE CONVIVENCIAPAD Ancash
El documento presenta información sobre una organización y su reglamento interno. Explica que una organización es un conjunto de personas que unen esfuerzos para alcanzar objetivos comunes. Luego describe la estructura organizacional formada por asociados, consejo directivo y asamblea general. Finalmente resalta la importancia del reglamento interno para establecer las normas de convivencia y funciones de cada parte de la organización.
Este documento resume los conceptos clave de la elasticidad de la demanda, incluyendo la elasticidad precio-demanda, la elasticidad renta-demanda y la elasticidad cruzada. Explica cómo cada tipo de elasticidad mide cómo responde la cantidad demandada a cambios en el precio, la renta u otros precios. También presenta ejemplos numéricos para calcular la elasticidad precio-demanda y la elasticidad cruzada.
El documento explica el concepto de frontera de posibilidades de producción y cómo este modelo muestra la eficiencia e ineficiencia en la asignación de recursos de una economía. Se describe cómo el comercio permite a los individuos especializarse en las actividades donde tienen ventajas comparativas, lo que aumenta la producción total y el bienestar económico.
El documento presenta una investigación sobre la incidencia del empleo rural no agrícola en los niveles de ingresos de las familias del centro poblado de Atipayan en Perú. El objetivo es explicar cómo el empleo rural no agrícola afecta los ingresos familiares y determinar los factores que influyen en este tipo de empleo. Se utilizan métodos estadísticos como regresión logística y pruebas chi cuadrado para analizar una muestra de 256 familias. Los resultados muestran que el ingreso promedio
Este documento presenta la formulación de proyectos, incluyendo el análisis de oferta y demanda, la determinación de costos de proyectos, y el cálculo del valor neto presente. Explica cómo estimar la demanda de servicios, la oferta actual y optimizada, y el déficit entre ambas para determinar el tamaño necesario del proyecto. También cubre la determinación de costos totales e incrementales de alternativas y el cálculo de ingresos, costos sociales y privados para evaluar la sostenibilidad financiera.
2. Economics: The Open-Access, Open-Assessment E-Journal 1
1 Introduction
Does macroeconomics need micro foundations? I presume, without having seen an
opinion poll, that most economists think so. Here, I will challenge this presumed
consensus and document some weaknesses in the common arguments that favor micro
foundations. I will then argue that it is microeconomics that needs foundations, not
macroeconomics.
Let me begin by recalling that the notion that macroeconomics should be based on
microeconomic first principles became widespread after the Lucas critique (Lucas
1976). (See Janssen 2008 for the motivations behind this in the late 1950s and 1960s).
The criticism was addressed to the use of large-scale macro econometric models then
commonly employed to help policy making. Take monetary policy, for example. A
central bank that adjusts its instrument interest rate hopes to affect all the nominal
interest rates of the economy and thus the real interest rates. After all, inter-temporal
consumption and investment expenditures depend on real rates. Here, the central bank
assumes that the private sector’s expectations of inflation are under control, but the
problem is that they are not. Worse, people can react so as to make the policy
unfeasible. Since the parameters of the macro econometric models of the time
depended implicitly on people’s expectations of policy decisions, they were unlikely to
remain stable as policymakers changed policy.
The econometric criticism can be translated into purely theoretical terms. Consider
one model of the macro economy where investment and labor demand are derived from
the present value of net revenues of firm owners in a perfectly competitive environment
(Scarth 1988). To get the present value, one has to resort to the discount factor 1+ r for
1
every time period, where r is the real interest rate. If monetary policy can affect the
real interest rate, it can also alter the investment and labor demand functions being
derived. However, the econometric estimates of such functions cannot be used for
policy purposes precisely because one needs new estimates of them every time the
central bank shifts the policy instrument. This policy will work only if people do not
react to the central bank’s changes of the nominal interest rate i . However, people are
likely to alter their expectation of inflation π e as the central bank changes i . Because
r = i − π e , it is also unlikely that people will maintain a constant r .
The same rationale extends to consumers making inter-temporal decisions and to the
interaction between firms and consumers in the labor market (Scarth 1988). First order
conditions of a micro-founded macro model of this type can generate consumption and
money demand functions along with the Phillips curve. As for the consumption
function, it is the subjective marginal rate of substitution between present and future
consumption that matters. However, this rate should remain invariant to macro policy
shifts if policy is to be successful. If consumers also respond to policy changes, the
Lucas critique applies. In the actual data, however, consumption and money demand
functions may remain stable in the presence of policy shifts (Lindé 2001). This
suggests that, although the Lucas critique may be in principle indisputable, its empirical
relevance can still be questioned (but see Lubik and Surico 2006). The implications of
the Lucas critique will be addressed below along with four other arguments that favor
micro-founded macro models.
www.economics-ejournal.org
3. 2 Economics: The Open-Access, Open-Assessment E-Journal
2 Arguments for Microeconomic Foundations
Argument 1. The Lucas critique can be preemptively removed if one employs
macroeconomic models with explicit microeconomic foundations.
This argument is commonly suggested after presentations of the Lucas critique, but it is
false. It is not guaranteed that the Lucas critique can be preemptively removed if one
employs macro models with explicit micro foundations. The Lucas critique has no
theoretical implications. At the time of his criticism, Lucas himself had observed that
the question of whether a particular model is structural is empirical, not theoretical
(Lucas and Sargent 1981). However, the critique has often been strictly interpreted as
having theoretical consequences.
Thus, after the Lucas critique macroeconomic research was reoriented toward
models with explicit expectations and “deep” parameters of taste and technology.
These models were to be invariant to policy shifts. Examples include not only derived
first-order conditions (such as those sketched above), but also general equilibrium
models with explicit optimization and new Keynesian models.
As it happens, explicit expectations models can also be scrutinized empirically with
tests of cross-regime stability. The tests show that even such macro models underpinned
with micro foundations can sometimes be subject to the Lucas critique. What is more,
some forward-looking models from the recent literature may be even less stable (and
thus more susceptible to the Lucas critique) than their backward-looking counterparts
(see Estrella and Fuhrer 2003 and references therein).
In contrast, empirical autoregressive macro models without explicit expectations
were expected to be plagued by parameter instability. After all, popular monetary
VARs, as an example, consider lagged representations of the economy as invariant
structural models. The same goes for other non-expectational autoregressive macro
models commonly employed in monetary policy analysis. Yet such kinds of model are
widely considered to be useful for analyzing monetary policy. Why? Because VAR
and non-VAR macro models without explicit expectations are often stable empirically
(see Rudebusch 2005 and references therein).
In the end, what we can learn from the empirical tests of the Lucas critique is that no
theoretical models can a priori prevent policy-parameter instability from occurring.
This is not unexpected since the Lucas critique has no theoretical implications
whatsoever.
Argument 2. Microeconomic first principles are policy-invariant.
The quest for first principles to underlie macroeconomics presumes that those principles
are policy-invariant. However, there is no such thing as policy-invariant microeconomic
first principles.
The Lucas critique applies to any shifts being predicted, not only policy shifts.
Model forecasts may exhibit instability across time when shifts in policy regimes occur,
but they can also be unstable if any behavior being predicted changes. If forecasts from
a model are to be useful, the parameters must be invariant to changes in the entire
expectations generating process, which involves any shifts being forecasted, not only
www.economics-ejournal.org
4. Economics: The Open-Access, Open-Assessment E-Journal 3
policy shifts. Lucas focused on policy invariance, but his criticism can be deepened
along these lines.
In terms of the example in the Introduction, a policy change can alter the real
interest rate being used in firms’ inter-temporal calculations, but the policy (and for that
matter any other change being forecasted) also modifies the rate of inter-temporal
substitution being used by consumers. It is unreasonable to assume that this rate should
remain invariant in the presence of changing forecasts. Because both the real interest
rate and rate of inter-temporal substitution in consumption should be functions of
expectations, every forecast made corresponds to a different real interest rate and a
distinct rate of inter-temporal substitution. Here, one can even extrapolate and think of
the multiplicity of equilibria that may occur due to the different beliefs held by
individuals about the future behavior of others. If there are multiple equilibria, it is
impossible to know how the economy will react to any particular government policy
(Rotemberg 1987).
Thus, there is no way to specify first principles (such as the rate of inter-temporal
substitution in consumption of the example) that are dependent on expectations and at
the same time invariant to either policy or any behavior being forecasted. This implies
that one must only check for model stability, regardless of the concern with invariant
first principles. This means the focus should be on econometrics rather than economic
theory.
As it is a purely econometric issue, one cannot learn a priori whether observed shifts
in either policy or any behavior being forecasted are large enough to significantly alter
the current model representation of economic variables. Similarly, one cannot learn a
priori how agents form their expectations of future events. The adaptive versus rational
expectations debate ends up useless. The stability or instability of a macro model is an
empirical, not a theoretical issue. (See Estrella and Fuhrer 2003 for more on this.)
Also, the failure to reject stability across observed shifts in historical data does not
guarantee stability in the presence of shifts that have not yet occurred. To complicate
matters, the nature of econometric tests is such that one cannot prove stability; one can
only fail to reject stability (Estrella and Fuhrer 2003).
Argument 3. New Keynesian macroeconomic models are founded on sound
microeconomic first principles.
One common modeling strategy applied in most new Keynesian macro models is to
justify the traditional “ad hoc” Keynesian assumption of sticky prices using
monopolistic competition. After all, if some individual firms set prices, they should
operate under, say, the market structure of monopolistic competition. This is so because
it is hard to think of a Walrasian auctioneer keeping prices rigid (Rotemberg 1987).
However, though monopolistic competition is part of any microeconomics syllabus, it is
hardly a first principle. First principles have to be identified inside consumer choice
theory, where the axioms about preferences are stated. Market structure is a feature of
the economy as a whole.
The individual consumer of axiomatic choice theory makes his optimal consumption
decision in an environment where transactions occur in markets – large markets to be
precise, such that consumer purchases cannot affect prices. The consumer then
considers all the market prices as set. Yet, if there are markets, it is implicitly assumed
www.economics-ejournal.org
5. 4 Economics: The Open-Access, Open-Assessment E-Journal
that there is at least one seller in addition to the consumer. However, firms enter the
stage only after consumer theory is complete, and then the discussion of their power to
set prices takes place. The absence of power occurs under perfect competition, it is
argued, and monopolistic competition is just another such environment where firms
have some power to set prices. Thus, the market structure of monopolistic competition
cannot be a micro first principle simply because it is not an ingredient of fundamental
value theory.
When providing a deeper reason for prices to be rigid, new Keynesians either
(Rotemberg 1987) (1) tell stories of individual firms with explicit costs for changing
price, or (2) directly restrict the frequency of price adjustment. As for (1), only small
price rigidities at the individual firm level are required to generate large output changes
in the aggregate. This happens because the profit functions of individual companies that
set prices are horizontal at the individual optimum price. Small deviations from the
optimum price lead to negligible losses for the individual firms, but they also lead to
large aggregate output swings (Rotemberg 1987). Though insightful in justifying why
price rigidity is not implausible, reasons (1) and (2) are not compelling enough to
overcome the hard fact that keeping prices flexible is cheaper (Rotemberg 1987).
Telling the familiar story that “small menu costs of individual firms can generate large
business cycles” sounds over-elaborated. In any case, all of the rationales in (1) and (2)
assume, of course, that the underlying market structure is either monopolistic
competition or any differentiated-product imperfect competition setup. (See Janssen
2008 for an in-depth analysis of the new Keynesian stories of micro foundations, and
also for the views of post-Keynesians and Austrian economics.)
Why rely on firms, rather than consumers, to justify sticky prices? New Keynesians
could have taken a different path. As they have specialized in macroeconomics, they
may be unaware of the alternatives to axiomatic choice theory, such as the challenge
posited by experimental economics and its theoretical consequences. New Keynesian
macroeconomics could still be rooted in first principles, but not those of either core
axiomatic theory or expected utility theory, its extension to risky choices. Why not try
prospect theory? This theory’s hallmark is that individual behavior is not the expected
result of a choice, but arises from consumer asymmetric response to gains and losses.
One implication is precisely the fundamental Keynesian notion that individuals will
respond more to price increases than to price reductions. This is so because the loss
associated with a price increase is valued more than the gain accruing from a price
reduction, which means that demand elasticity is different for increases versus
reductions in price. A price increase alters the quantity demanded more, and thus the
demand elasticity for price increases should be larger, making the price stickier
downward. Another advantage of seeking micro foundations in prospect theory is the
finding that the theory seems to be tuned to the functioning of the brain (Trepel et al.
2005), an issue to which I will turn next.
Even if the micro foundation chosen looks appropriate, it is the very quest for micro
foundations that is misleading and doomed to fail.
www.economics-ejournal.org
6. Economics: The Open-Access, Open-Assessment E-Journal 5
Argument 4. There are well-established microeconomic first principles.
At present, there is no such thing as well established micro first principles because
consumer choice theory is only axiomatic, and preferences are not specified to reflect
how the human brain actually works. Axiomatic choice theory is not rooted in
neurobiology.
In terms of the brain processes involved, all rational-choice models of optimization
implicitly assume that behavior is the result of decisions that are both controlled and
rational and thus occur in the cerebral cortex (Camerer et al. 2005). However, decisions
can also be automatic and emotional. Behavior is then the result of four kinds of
decision processes that may either cooperate or compete. Axiomatic choice theory as it
stands today cannot explain every kind of choice behavior because it considers only the
equilibrium special case of brain processes involved in rational and careful deliberation.
Yet even as a special case, current axiomatic choice theory may be unsatisfactory
because the cortex also receives inputs from automatic and emotional brain processes.
For instance, emotions are intrinsic to rational decision making (Bechara and Damasio
2005). Moreover, there is also the mediation of hormones and other biological
characteristics that are known to bound behavior.
Axiomatic choice theory needs to be entirely rebuilt to account for the recent
insights from “neuroeconomics” (as above) as well as the anomalies found by
experimental economists (Ariely 2008) that will be confirmed by neuroeconomics.
More generally, preferences should be consistently rooted in biology (see Robson 2001
for the details).
Axiomatic choice theory was developed under the constraint that utility could not be
measured objectively (Camerer et al. 2005). The concepts of ordinal utility and
revealed preference provided a scientific detour where measuring utility was
unnecessary. Revealed preference theory equated unobserved preferences with
observed choices. However, observed choices can also reflect brain processes that are
neither rational nor thoughtful, as observed. Thus, revealed preference cannot validate
axiomatic choice theory. Neuroscience has now made it possible to measure utility
objectively (Camerer et al. 2005, Platt and Huettel 2008). Functional magnetic
resonance imaging and other techniques are currently being applied to make a
comprehensive mapping of the cerebral regions involved in choice (Platt and Huettel
2008). This endeavor will give us a detailed picture of how choice works in the brain. I
predict that it is only a matter of time before economists rebuild choice theory taking
into account such discoveries.
Thus, it is microeconomics that needs foundations. Preferences need to be built on
biology, and, in particular, on neuroscience. In contrast, macroeconomics does not need
micro foundations − an issue that I will discuss next.
Argument 5. The behavior of microeconomic units is relevant for the building up of
macroeconomic models.
To start, I invoke the Sonnenschein-Mantel-Debreu theorem of general equilibrium
economics (Sonnenschein 1973). General equilibrium is an example of microeconomics
for the economy as a whole. The theorem states that a system of excess demand
functions of an economy with many agents is not restricted by rationality assumptions
www.economics-ejournal.org
7. 6 Economics: The Open-Access, Open-Assessment E-Journal
regarding the demands of the individuals in the economy. Thus, microeconomic
rationality assumptions have no macroeconomic implications. I think this theorem can
be extended to the proposition that every kind of behavior on the part of microeconomic
units is irrelevant for macroeconomics.
In economics, there are concepts that cannot make sense at the same time in both
micro and macroeconomics. Thus, the mirage of a unified economics without the split
between micro and macro is illusory. One striking example is money. Money does not
matter at all for individual choice, but it is almost everything in macroeconomics. One
result of axiomatic choice theory is that demand functions are homogeneous of degree
zero in prices and income. Only relative prices and real income affect utility-
maximizing behavior. The only role that money plays is as a unit of accounting: the
consumer has no money illusion.
In contrast, macroeconomics is about the role of money in causing temporary
business cycles. This occurs because purchases and sales can be separated in time as
money serves as a store of value. Money causes temporary departures from the
classical Say’s law through credit (money advanced against future production) or
money hoarding; these are the ultimate causes of booms and recessions.
Macroeconomics is all about what will happen as Say’s law does not hold “in the short
run.” One reason why money will never be satisfactorily justified on a microeconomic
basis is that the very concept only makes sense relative to the economy as a whole.
Money is a social construct; it is the joint creation of the whole society. Thus, it is
external to any particular individual, and one individual’s will does not matter. In this
sense, money affects individuals the same way as any natural phenomenon does.
In classical economics, there is already an incipient division between micro and
macroeconomics (see Sowell 1974 for a masterful exposition). Take Say’s law again, a
principle that Keynes considered to be correct only “in the long run.” Say’s law is the
founding principle of macroeconomics and it holds true regardless of individual
preferences or choice. Purchasing power can only be created by production, the
principle goes, and there can be nothing in circulation capable of creating or destroying
purchasing power. Credit only anticipates purchasing power as today’s credit is
tomorrow’s debt, and one can only pay off a debt if he eventually produces. Hoarding
cannot destroy purchasing power, but only postpone its eventual use. As such, the
supply of the production in markets has already automatically created its own demand
(purchasing power) (Sowell 1974). Keynes launched macroeconomics by stating that,
while this principle holds true, the separation between purchases and sales provoked by
money can generate potentially long-lasting booms and recessions. However,
individual choice does not matter in either Say’s law or the macroeconomics of Keynes.
Classical “microeconomics” can be thought of as the controversies over the origin of
value (cost of production versus utility). A consensus over value theory inaugurated
modern economics with the marginalist revolution. Here, value ended up explained by
scarcity, that is, both costs and utility. Goods have value as they have utility and are
also limited in quantity. The consensus was about microeconomics, not
macroeconomics. The validity of Say’s law, as observed, holds regardless of
microeconomics. So do other principles of classical macroeconomics, such as the
quantity theory of money and Ricardian equivalence; at first, these do not need to
depend on individual choice.
www.economics-ejournal.org
8. Economics: The Open-Access, Open-Assessment E-Journal 7
Thus, macro behavior was in classical times, and should continue to be, based on
“social atoms” (Buchanan 2007) with no free choice. Theoretical progress in
macroeconomics can be boosted by learning how to anticipate the patterns that emerge
naturally when many social atoms interact. Macroeconomics is about the behavior of a
large number of micro units, and as such, a statistical physics approach to the macro
system as a whole is appropriate. In macroeconomics, one needs to think in terms of
complex patterns, not people. By learning how to manage such patterns, one could be
more effective in making macro policies. The existing science that best tackles the
complexity of macro systems is statistical physics.
As for microeconomics, the field should try to progress by continuing to focus on
individual choice because we now have the means to make real progress in that
direction by resorting to the advances of neurobiology (as observed). Here, there is no
contradiction between individual freedom of choice and the existence of physical laws
for the economy as a whole. Patterns can exist at the mass level, even while individuals
continue to make free choices. But choices are constrained by what the group does
(Buchanan 2007).
In natural sciences, such as physics, biology, chemistry, and ecology, a different
approach is often considered to be necessary when one focuses on macro systems made
up of a large number of micro units. In such a case, the precise behavior of a micro unit
is considered irrelevant. For the macro system as a whole, the statistical approach is
thus often employed. This attitude can also be adopted by economists. One common
argument opposing this idea is that performing empirical analyses of economic data is
not equivalent to experimental investigation in physics because it is not possible to carry
out large-scale experiments in economics that could falsify a theory. However, this
limitation is also present in well-developed physics areas, such as astrophysics,
atmospheric physics, and geophysics (Mantegna and Stanley 2000). Economists could
make progress by creating their own experiments using methodologies from these areas.
In fact, this is already being done actively by economic physicists (Mantegna and
Stanley 2000), but such an “econophysics” agenda has remained almost unnoticed by
economists.
The Sonnenschein theorem also has implications for microeconomics. For instance,
equilibrium may not be unique in cases with many interrelated markets. This can be
interpreted in our terms by saying that the microeconomics of interrelated markets is
susceptible to the same treatment as that given to macroeconomics, that is, a statistical
physics approach. In a way, much of current microeconomics is actually
macroeconomics. Apart from consumer choice theory, much of the remaining micro
theory also aims to explain features of the economy as a whole. In this respect,
econophysics is also currently studying behavior in interrelated markets.
From another angle, macroeconomics is about the dynamics of aggregate variables
averaged over many individual variables. As such, micro-founded macroeconomics is
also likely to suffer from the problem of aggregation. The aggregation issue may be as
important as the Lucas critique, but is generally neglected in micro-founded
macroeconomics (Scarth 1988). Most economists operate as if the controversy of
Cambridge had not taken place. One phantasmagoric result of the controversy was
“reswitching,” that is, the fact that a particular technique can be the lowest-cost one at
both high and low interest rates but not at intermediate interest rates. This led to the
conclusion that microeconomic theory has macroeconomic implications only under
www.economics-ejournal.org
9. 8 Economics: The Open-Access, Open-Assessment E-Journal
rather restrictive assumptions. Aggregation problems are not only important for capital
goods, and there is nothing special about aggregating capital as opposed to labor or
output (Bliss 1975). Aggregation problems also arise for consumer goods and assets.
Aggregation across individuals is also a problem. For example, when testing for the
Lucas critique, if one employs aggregate data it is tacitly assumed that the aggregator
function is invariant to changes in the policy regime. The problem is that the
aggregators depend on the policy regime to about the same extent as do expectations
(Geweke 1985). So why overemphasize the Lucas critique while completely neglecting
the aggregation problem?
Yet there is a related, all-mainstream problem. Micro-founded macroeconomics is
about the analysis of optimization of a “representative agent” that averages over all
heterogeneous agents. The behavior of the representative agent is then extended to the
analysis of the economy as a whole. The problem is that heterogeneous agents cannot
be successfully replaced by the representative agent even if all the heterogeneous agents
are utility maximizers (Kirman 1992). The representative agent and the individual
agents themselves may actually behave in tandem. Despite that, micro-founded
macroeconomics operates by assuming that the differences in agents and idiosyncratic
micro shocks cancel each other out such that aggregate behavior can be represented by
average behavior, that is, the behavior of the representative agent.
In physics, the attitude of finding it legitimate to concentrate on averages can be
justified if there is self-averaging. In particular, the representative agent can be
rationalized by a Poisson model because in such a framework, as the number of agents
becomes large, the model coefficient of variation approaches zero (Aoki and Yoshikawa
2007a). In the Poisson model, agents become homogeneous because they face the same
unchanged instantaneous probability that a shock will hit them. In other words,
different shocks come from the same probability distribution. However, even if the
number of agents is large, macroeconomic behavior cannot be represented with
averages because macroeconomics exhibits the property of non-self-averaging (Aoki
and Yoshikawa 2007a). This means that a size-dependent random variable of the model
presents a coefficient of variation that does not converge to zero as model size goes to
infinity. Non-self-averaging implies that the representative agent simply does not exist
because the focus on averages is unjustified.
Expectations as well as agents should be heterogeneous. This can be illustrated with
reference to the El Farol bar problem (Arthur 1994). Suppose that one hundred people
must decide independently each week whether to show up at their favorite bar (El Farol
in Santa Fe). If someone predicts, say, that more than 60 will attend, he will avoid the
crowds and stay home. If he predicts fewer than 60, he will go. No “correct”
expectational model can be assumed to be common knowledge. If all use a model (say,
rational expectations) that predicts that few will go, all will go, thereby invalidating the
model. If all believe that most will go, no one will go, invalidating the belief.
Expectations will be forced to differ; that is, they should be necessarily heterogeneous.
Rather than relying on the representative agent, macroeconomics can be rebuilt
based on the explicit interaction between heterogeneous agents. One such an attempt is
called “emergent macroeconomics” (Delli Gatti et al. 2008). It offers methods from
recent advances in agent-based computational modeling for the building up of macro
models in which business cycles and economic growth emerge from the interactions of
a large number of heterogeneous agents. Here, aggregate phenomena emerge
www.economics-ejournal.org
10. Economics: The Open-Access, Open-Assessment E-Journal 9
spontaneously from the interactions of individuals attempting to coordinate their actions
on markets; that is, macroscopic regularities emerge from the microscopic behavior of
social atoms. Aggregate behavior is due to emergence rather than to micro rules
(Schelling 1978).
Another attempt can be dubbed “statistical macroeconomics” (Aoki and Yoshikawa
2007b). Here, macro models are also made up of a large number of agents and
explicitly address the stochastic dynamic and combinatorial aspects of the interactions
between agents. Equilibria are considered as statistical distributions, not fixed points.
One result is that equilibrium is not always possible even if prices are flexible.
The property of non-self-averaging of macroeconomics means that averages cannot
represent individual agents (as observed). Other economic phenomena resulting from
the interaction of agents, such as income and wealth distribution, firms’ and cities’ size
distributions, stock market returns, trading volume, and international trade, just to name
a few, also show the property of non-self-averaging. The average cannot represent all
agents. What is more, there is no typical scale in phenomena that exhibits non-self-
averaging. Lack of typical scale can be described by non-Gaussian power law
distributions, and econophysicists are uncovering a large number of empirical
regularities in economics that follow power laws (Gabaix 2008). If a phenomenon is
governed by a power law, averages cannot represent the entirety, there is no typical
scale for it, and thus there is no qualitative difference between large and small scales.
Economics has historically received conceptual inputs from physics. Central
economics concepts, such as that of equilibrium, originate in physics. The more recent
wave of influence, however, comes from disequilibrium, not equilibrium, statistical
physics. It is the physics of “emergence” and “self-organized criticality.” It is not
unexpected that most, but not all (Krugman 1996), mainstream economists will react
with skepticism. Skeptics can wait for the practical fruits of an econophysics field run
by physicists alone, but some may join the enterprise now.
3 Concluding Remarks
I have related five major arguments that I think are implicit in the modern quest for
micro foundations for macroeconomics. They are as follows:
(1) The Lucas critique can be preemptively removed if one employs macro models with
explicit micro foundations.
(2) Micro first principles are policy-invariant.
(3) New Keynesian macro models are founded on sound micro first principles.
(4) There are well established micro first principles.
(5) The behavior of micro units is relevant for the building up of macro models.
I have argued that such arguments are flawed, and my case was made by simply
resorting to the already existing literature. Incidentally, I tried to justify
neuroeconomics and econophysics as promising routes for value theory and
macroeconomics respectively.
www.economics-ejournal.org
11. 10 Economics: The Open-Access, Open-Assessment E-Journal
An incipient distinction between micro and macroeconomics was already present in
classical times, and there is no reason to pursue a unified economics today. Rather, for
the first time ever, we now have the means for economics to become a booming science
similar to what biology is today. This may become a reality if economists eventually
(1) embrace the old distinction between micro and macro, (2) contribute to providing
foundations for preferences in neuroscience, and (3) open their minds to rationalizations
of aggregate economic phenomena by non-equilibrium statistical physics.
In one pessimistic future scenario, the quest for the neurobiological basis of
preferences and the statistical physics approach to macroeconomic problems will
continue over the next quarter century in much the same way as they have so far, by
adding further layers of complexity to a literature that is already difficult to follow.
However, the developments may take a distinct route. In one optimistic scenario,
economists may soon be practicing a dramatically different type of science than we
have experienced over the past 25 years. Surely much of this change will be apparent at
the technical level. Yet, ultimately, the more fundamental change will be conceptual.
www.economics-ejournal.org
12. Economics: The Open-Access, Open-Assessment E-Journal 11
References
Aoki, M., and H. Yoshikawa (2007a). Non-Self-Averaging in Macroeconomic Models:
A Criticism of Modern Micro-Founded Macroeconomics. Economics Discussion Paper,
No 2007-49. http://www.economics-ejournal.org/economics/discussionpapers/2007-49
Aoki, M., and H. Yoshikawa (2007b). Reconstructing Macroeconomics. Cambridge:
Cambridge University Press.
Ariely, D. (2008). Predictably Irrational. New York: Harper Collins Publishers.
Arthur, W.B. (1994). Inductive Reasoning and Bounded Rationality. American
Economic Review 84: 406−411.
Bechara, A., and A.R. Damasio (2005). The Somatic Marker Hypothesis: A Neural
Theory of Economic Decision. Games and Economic Behavior 52: 336–372.
Bliss, C.J. (1975). Capital Theory and the Distribution of Income. New York: Elsevier.
Buchanan, M. (2007). The Social Atom. New York: Bloomsbury Publishing.
Camerer, C., G. Loewenstein, and D. Prelec (2005). Neuroeconomics: How
Neuroscience Can Inform Economics. Journal of Economic Literature 43: 9−64.
Delli Gatti, D., E. Gaffeo, M. Gallegati, G. Giulioni, and A. Palestrini (2008). Emergent
Macroeconomics. Milan: Springer.
Estrella, A., and J.C. Fuhrer (2003). Monetary Policy Shifts and the Stability of
Monetary Policy Models. Review of Economics and Statistics 85: 94−104.
Gabaix, X. (2008). Power Laws in Economics and Finance. NBER Working Paper
14299.
Geweke, J. (1985). Macroeconometric Modeling and the Theory of the Representative
Agent. American Economic Review 75: 206–210.
Janssen, M.C.W. (2008). Microfoundations. In S.N. Durlauf and L.E. Blume (eds.), The
New Palgrave Dictionary of Economics, 2nd Edition. Basingstoke: Palgrave Macmillan.
Kirman, A.P. (1992). Whom or What Does the Representative Individual Represent?
Journal of Economic Perspectives 6: 117–136.
Krugman, P.R. (1996). The Self-Organizing Economy. Oxford: Blackwell.
Lindé, J. (2001). Testing for the Lucas Critique: A Quantitative Investigation. American
Economic Review 91: 986−1005.
www.economics-ejournal.org
13. 12 Economics: The Open-Access, Open-Assessment E-Journal
Lubik, T.A., and P. Surico (2006). The Lucas Critique and the Stability of Empirical
Models. Federal Reserve Bank of Richmond Working Paper 06−05.
Lucas, R.E. (1976). Econometric Policy Evaluation: A Critique. Carnegie-Rochester
Conference Series on Public Policy 1: 19−46.
Lucas, R.E., and T. Sargent (1981). After Keynesian Macroeconomics. In R.E. Lucas
and T. Sargent (eds.), Rational Expectations and Econometric Practice. Minneapolis:
University of Minnesota Press, 295−319.
Mantegna, R.N., and H.E. Stanley (2000). An Introduction to Econophysics.
Cambridge: Cambridge University Press.
Platt, M.L., and S.A. Huettel (2008). Risky Business: The Neuroeconomics of Decision
Making under Uncertainty. Nature Neuroscience 11: 398−403.
Robson, A.J. (2001). The Biological Basis of Economic Behavior. Journal of Economic
Literature 39: 11−33.
Rotemberg, J.J. (1987). The New Keynesian Microfoundations. NBER Macroeconomics
Annual 2: 69−104.
Rudebusch, G.D. (2005). Assessing the Lucas Critique in Monetary Policy Models.
Journal of Money, Credit, and Banking 37: 245−272.
Scarth, W.M. (1988). Macroeconomics. Toronto: Harcourt Brace Jovanovich.
Schelling, T.C. (1978). Micromotives and Macrobehavior. New York: W.W. Norton.
Sonnenschein, H. (1973). Do Walras’ Identity and Continuity Characterize the Class of
Community Excess Demand Functions? Journal of Economic Theory 6: 345–354.
Sowell, T. (1974). Classical Economics Reconsidered. Princeton: Princeton University
Press.
Trepel, C., C.R. Fox, and R.A. Poldrack (2005). Prospect Theory on the Brain? Toward
a Cognitive Neuroscience of Decision under Risk. Cognitive Brain Research 23: 34−50.
www.economics-ejournal.org