1. Lecture: Who is Who in Macro (Historical Excursion)
Alemayehu Geda
Departments of Economics
University of London and Addis Ababa University
May, 2006
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2. Macro Model and Macro Paradigms
Historical Excursion
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3. Historical Excursion Great Depression Now…. Modigliani Keynes 1929
1936
‘43
1937
Classical
’70/80
‘50
Hicks
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4. Macroeconomic is Concerned:
Aggregates: Inflation, Output, unemployment…
Action of Gov’t affects aggregates
Fiscal
Monetary
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5. Three Event for Evolution of Macro:
Systemic Data Collection
Business Cycle
Great Depression
Follows Says law
Markets are self-regulating
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6. Keynes’ General Theory
Markets are not Self-regulating
Gov’t Intervention is desirable
Kalecki already noted
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7. Neoclassical Synthesis Keynesians (NCSK)
Old/Neo Keynesians is also used
Many recognized the unemployment is not temporary
But hold to Classical axioms
Neutrality of money
Gross Substitution assumption
Erogodic Economic Environment
Cast Keynes in Classical Set-up – The IS/LM
Ad hoc Constraints are used
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8. New Keynesian Obey to Classical Axioms
Introduce sophisticated (non-ad hoc) Constraints
Coordination failure
Asymmetric information
Transaction/menu costs etc…
If Prices are flexible and information free – coincides with classical
Both old and New take the classical system as the general system and Keynes as special case
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9. New Classical Macroeconomics
Add a strong statement that summarizes how you feel or think about this topic
Summarize key points you want your audience to remember
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10. Post Keynesian Macroeconomics
Argue that Keynes’ revolution is aborted
Take Kaldor, Klaecki, Robinson and Keynes as intellectual ancestors
Concerned with RECOVERY and EXTENSION of Keynes
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11. Fundamental basis of PK are:
Role of Social Conflict in distribution of income
Centrality of aggregated demand in determining output
Inability of nominal wage adjustment to bring about solution to the unemployment problem
Endogenous nature of money
Fundamental and mutable nature of expectations
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12. Structural Macroeconomists
Basically similar to PKs
Emphasize class and distribution of income/political economy
Importance of intuitions and economics structure in shaping agents behaviors
The possibility of both quantity and price clearing in markets
They focus on developing countries
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13. HETRODOX MACROECONOMICS
Refers to
(A) Post-Keynesian and,
(B) Structuralist Macroeconomics
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14. (A) Post Keynesian Macroeconomics
Argue that Keynes’ revolution is aborted
Take Kaldor, Klaecki, Robinson and Keynes as intellectual ancestors
Concerned with RECOVERY and EXTENSION of Keynes
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15. Fundamental basis of PK are:
Role of Social Conflict in distribution of income
Centrality of aggregated demand in determining output
Inability of nominal wage adjustment to bring about solution to the unemployment problem
Endogenous nature of money
Fundamental and mutable nature of expectations
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16. (B) Structural Macroeconomists
Basically similar to PKs
Emphasize class and distribution of income/political economy
Importance of intuitions and economics structure in shaping agents behaviors
The possibility of both quantity and price clearing in markets
They focus on developing countries
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17. Structural Macroeconomists (Cont’d)
Building on similar ideal to PKs
‘An economy has a structure if its institutions and the behavior of its members make some patterns of resource allocation and evolution substantially more likely than others. Economic analysis is structuralist when it take these factors as the foundation stones for its theories’ Taylor 1983.
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18. Structuralist Cont’d
The Structuralist approach embraces three premises (FitzGerald & Vos 1989):
(1) Economies are built up from agents such as firms, governments & households whose who are not simple optimizers but their behavior depends on the context of institutions, production organization or social class in which they operate
(2) Markers may show rigidities, perverse response to price owing to institutional behavior, market power, imperfect information and class interest
(3) Institutional setting and relate market rigidities are basic structural features but are not unchangeable over time
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19. The Structural Approach also emphasize:
The possibility of both quantity and price clearing in markets
Income distribution is central in macroeconomic analysis
They focus on developing countries
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20. In terms of details the Structural approach focuses:
Prices are set at mark-up over prime cost (the degree of monopoly – Kalecki)
Saving propensities are assumed to differ by class
Short-run models are set-up in variable s normalized/divided by capital stock (to emphasize growth and profit as opposed to levels of investment and payment to factors
Macro balance is decomposed sectorally (stability is attained by minimizing sectoral excess demand to zero – with Jacobian checked; sector could be ‘flexi-fixi price’)
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21. Details of Structuralist Cont’d
Imports are split in several ways (capital good a function of investment; intermediate a function of output
Long-run issues are investigated by setting up transitions between steady states in which all variables growth at constant rate
Ex: in one 1 sector model there are two conditions (a) the rate of money expansion and output growth should be equal, and (b) wage inflation should be equal price inflation/ real wage should be constant)
Finally, direction of causality varies model to model (that is all what analysis is about)
Pls read Gebre-Hiwot and Deressa who wrote along this line (Alemayehu 2004, IJEDS e-journal)
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22. Thank You
Thank you (End of Session)
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