tag:blogger.com,1999:blog-2546602206734889307.post5775570234972858070..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Microfoundations and Macro WarsMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-2546602206734889307.post-64282023095739773202013-11-07T09:32:57.224+00:002013-11-07T09:32:57.224+00:00I think you miss one point. There is a tendendy to...I think you miss one point. There is a tendendy to not look at deductive and inductive processes in a complementary way. VAR inference is useful when you want to test theoretical predictions made in a deductive way (purist or not). The deductive way is important in order to better understand the sources of the dynamics involved.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35696569284691606082013-10-17T00:58:24.032+00:002013-10-17T00:58:24.032+00:00If you can't get to macro from micro-foundatio...If you can't get to macro from micro-foundations, then you are simply wrong, but you have to get both your macro and micro right. The big debate about QED was that the mathematics suggests infinite sums, but the real world tells us the sums are finite. Renormalization was the path to reconciliation, but some, like Dirac, were never comfortable with the idea.<br /><br />Of course, right now, neither micro nor macro are particularly useful.Kaleberghttps://www.blogger.com/profile/05283840743310507878noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-10599388393750648992013-10-17T00:04:20.025+00:002013-10-17T00:04:20.025+00:00For the lay persons reading, I think its important...For the lay persons reading, I think its important to try and convey WHY people want good microfoundations. It's not solely a desire for mathematical barriers to entry to the profession or an urge to prove government intervention is always and everywhere a Bad Thing (though of course both motives exist).<br /><br />The Lucas Critique has force. If you are going to rely on past relations between aggregate variables as levers to try and alter the future then you have to understand WHY those past relations existed - otherwise you cannot predict what will actually happen when you pull a lever. That is because pulling the lever itself can give incentives to people to behave differently than they did in the past. You need to understand what drives that behaviour, and that's what "microfounded" means. That's the common explanation why both old Keynesian and monetarist approaches failed in the 1970s.<br /><br />I've tried to do justice to the microfounders here, but I'm actually less sympathetic than Simon. That's basically for the reason Anonymous, citing Stiglitz, says - there is no reason at all to think you CAN derive reality-fitting aggregate relationships from simple models of individual behaviour, however desirable that is. And in practice when this failure becomes apparent it has been the "reality-fitting" bit too many practitioners have discarded rather than the simple model.derrida deridernoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67617892192206458942013-10-16T16:19:32.993+00:002013-10-16T16:19:32.993+00:00But, for micro foundations models to be useful the...But, for micro foundations models to be useful the foundations have to be correct. As Stiglitz and others have persuasively argued, they aren't!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-40109727363700279602013-10-16T16:02:57.271+00:002013-10-16T16:02:57.271+00:00Models develop usually in steps.
Like here from th...Models develop usually in steps.<br />Like here from the very general to the more and more specific.<br /><br />Basically they get more accurate in that process. However usually at the costs of becoming more and more complicated. Not only does it takes more time to do things, but also most people simply lose oversight in what they are doing. And in that process often make a lot of mistakes.<br /><br />You can approach things purely academically. If so making mistakes is imho in general not bad. See it merely as a step on the road to wisdom. Bit like if Higgs Boson would at the end be wrong, it still would be extremely useful as it simply looks like a step that was necessary (in the whole process of things) to come to the right conclusion.<br />If you have to work in the real world and base important decisions upon it things get however different. Makes new stuff nearly always impossible to sell as well btw.<br /><br />Seen from that angle. Micro foundations in macro is just a step into that direction. One can imagine or even expect that a further breaking up of the different factors in future would start another similar process. And go another layer (or two) deeper.<br />Sectors in business, lifecycles of business, different social and economic classes of consumers stuff like that.<br />Making most likely the collision between better results and more timeconsuming and greater lack of oversight even bigger. <br /><br />There is imho nothing wrong fundamentally with having a function behave differently depending on where you are on the traject. It is however simply too complicated (mathematically) for most people to grasp what is happening.<br />With wages one could imagine that not only nominal zero is a point where the maths changes. But also real spending income zero for instance probably less but nevertheless one can imagine that employers will face a lot of pressure when their employees face a drop in real spending power. People simply like to put the bill of say rising costs first with somebody else. And donot forget the legal stuff. Simply not allowed to reduce onesided wages and with strong labour protection there is no easy way out of that. Basically what you see in Spain now. <br /><br />Basically what you do is using a formula iso an assumption. Where earlier it was a given or assumption if you like.<br />It is however good to realise the dynamics hereof. Assumptions are simply put in place often because they are stable. If so no use to complicate things by getting into detail is pretty useless. Allthough it makes you usually look pretty clever in the eyes of many if you do (no joke btw).<br />Another issue is that people understand the more complex it gets hard to simplify things again. They got their knowledge by going from step to step. You have to move from step to step back as well. Going half way (between two steps) back to make things easier simply doesnot work. Simply most people lose the plot in that process. Basically caused by the fact that they not truly understand the maths (and subsequently are able to play with it). They simply understand the trick and not more. Not even to mention getting programms adjusted.<br /><br />If decisionmaking on short notice is required you often simply need simple stuff. Better for oversight and adjusting when there are last minute changes in the facts.<br /><br />Also imputdata can be so inaccurate that getting into detail is just a waist of time. <br /><br />Basically however a simple upfront check id assumptions and formulaes used are appropriate fot he thing you want to look at would solve a lot of things. But again you are likley to bump into the problem that the large majority understands only the trick but not really the underlying math or better the formula itself.Riknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-29412694211722162452013-10-16T15:17:04.586+00:002013-10-16T15:17:04.586+00:00Simon,
Have you read Wynne Godley and Marc Lavoie...Simon,<br /><br />Have you read Wynne Godley and Marc Lavoie's 'Monetary Economics' (2007)?<br /><br />http://dl4a.org/uploads/pdf/Monetary+Economics+-+Lavoie+Godley.pdfPhilippenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-88320962253608434442013-10-16T13:50:49.425+00:002013-10-16T13:50:49.425+00:00I have no problem with the idea of Micro-foundatio...I have no problem with the idea of Micro-foundations even though the logical extension of the idea is both an absurdity and misses the point. Models are supposed to be models, which are simplified representations. An ever more exact replica is in the end useless, impossible and circular as it will just bring you back right where you are, wondering what will happen next.<br />But clearly micro-foundations has a time and a place.<br />What I would like to see is an interaction term between agents, and an interaction term between agents and expectations. One of the useful things economics can teach us is that 2+2 can equal 5. The greeks knew this when they organized in a Phalanx to beat armies with superior numbers. agents interact and organize all the time so their sum is greater than their parts. Agents do this with the organization of companies, soldiers still do this, and countries do this - we organize (it's called government...) so the sum of all citizens is greater.<br />Unfortunately, either to make microfoundations tractable, or to support an idealogical bent, or simply due to lack of imagination, microfounders (on average...) have taken things backwards to a world where government is the problem, and agents don't organize - they balkanize and achieve through the market, only.<br />ughh - that ain't progress. It's always easier to deconstruct than to construct. Don't set to easy a task guys. Tell us how to organize, interact to make great countries.<br />DanDanhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4591593299300282112013-10-16T09:05:20.679+00:002013-10-16T09:05:20.679+00:00Great stuff. Very clearly set out.
I think it is...Great stuff. Very clearly set out.<br /><br />I think it is questionable whether microfounded models can ever be usefully extended to encompass real world complexities that really matter. Even if techniques are developed to incorporate such things, more complexity often implies less generality and robustness.<br /><br />A far better approach is to combine the strengths of both styles - to use each as a check on the other. I often find it a highly illuminating process to think about why two different modelling styles are producing seemingly conflicting results.<br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-78185991188536010182013-10-16T09:03:28.724+00:002013-10-16T09:03:28.724+00:00Extremist positions (e.g. RBC or VAR) are always m...Extremist positions (e.g. RBC or VAR) are always much easier to defend than more moderate ones, therefore you generally encounter a lot of extremism in e.g. academia.<br /><br />E.g. almost everyone talking politics in the dorm rooms are extremists. Very few people are extremists, instead almost everyone seem to be very conservative social liberals - but that is a very hard position to defend, so they generally don't enter the discussion. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-5712759104421324122013-10-16T08:52:45.812+00:002013-10-16T08:52:45.812+00:00When you talk of the 'Keynesian' position ...When you talk of the 'Keynesian' position on inflation up to the 1970s, that is really the Irving Fisher money illusion position that Keynes adopted (and Akerlof synthesised the stagflation and the money illusion positions in 2000). <br /><br />I know that Shiller has pushed his 'baskets' idea for decades (computerized money index-linked to inflation), and it rarely gets a mention in trying to fuse this divide, much to his annoyance. <br /><br />I think uber-rationality models (Savage) as much came from the attempt to justify why the monopoly economies of the Soviet era persisted - trying to use rationality on the Holocaust was not part of this new generation's history (Michael Mann uses Weber's 'value rationality' in his Dark Side of Democracy, 2005, to get some explanation of Nazi genocide, in the way that 'rationality' is a collective monomania). <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11814601405534645552013-10-16T08:17:05.050+00:002013-10-16T08:17:05.050+00:00Sir, I read your analysis with interest. It is som...Sir, I read your analysis with interest. It is something a lot of people have been asking about. I remember this subject coming up as far back as the 1980s. Strange alliances seem to be result - as both Keynes and Friedman seemed to have always maintained that what was important is forecastable accuracy - partial equilibrium models are fine for this purpose, while the New-Classicalists (Monetarist II) argue that what is important is consistency and micro-foundations. Personally I think models in any case should only be a reference point. They should not take up 80 per cent of the the analysis in a paper with perfunctory regard for evidence or historical and other context. If you are trying to find an Einsteinian equation that explains the universe you should be in maths, physics, or philosophy department, not an economics one. Economics is about finding policy solutions, to extreme poverty for example that affects a large proportion of the world's population. Finding policy solutions are not a long term abstract goal, they are urgent,. This is the business of social sciences. If this is not "pure" or "rigorous" or "formal" or "sophisticated" enough for you, you should be somewhere else. A model that can work and can be a usefully applied to policy is should be the ultimate test in this business. How this discipline got hijacked by this crowd (I think it actually started around 1950 with the application of optimisation techniques) would be an interesting investigation - for political philosophers.Anonymousnoreply@blogger.com