|
on History and Philosophy of Economics |
| By: | Thorvaldur Gylfason |
| Abstract: | Macroeconomic Dynamics commissioned this interview with Assar Lindbeck for a series of such conversations with economists, starting with Duncan Foley’s interview with Wassily Leontief in 1998. Other interviews in the series include Ben McCallum’s interview with Robert Lucas (1999), Olivier Blanchard’s interview with Janos Kornai (1999), Daniel Trefler’s interview with Elhanan Helpman (1999), William Barnett and Robert Solow’s interview with Franco Modigliani (2000), John Taylor’s interview with Milton Friedman (2001), James Poterba’s interview with Martin Feldstein (2003), Brian Snowdon’s interview with Axel Leijonhufvud (2003), William Barnett’s interview with Paul Samuelson (2003), and John Campbell’s interview with Robert Shiller (2004). Forthcoming interviews include Olivier Blanchard’s interview with Stanley Fischer (2005), Omar Licandro and Pierre Dehez’s interview with Jacques Drèze (2005), and George Evans and Seppo Honkapohja’s interview with Tom Sargent (2005). |
| JEL: | A10 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1408&r=hpe |
| By: | George W. Evans; Seppo Honkapohja |
| Abstract: | The rational expectations hypothesis swept through macroeconomics during the 1970’s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modelling. The rational expectations hypothesis was initially formulated by John F. Muth Jr. in the early 1960s. Together with Robert Lucas Jr., Thomas (Tom) Sargent pioneered the rational expectations revolution in macroeconomics in the 1970s. We interviewed Tom Sargent for Macroeconomic Dynamics. |
| JEL: | E00 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1434&r=hpe |
| By: | Gebhard Kirchgässner |
| Abstract: | The weak rationality principle is not an empirical statement but a heuristic rule of how to proceed in social sciences. It is a necessary ingredient of any ‘understanding’ social science in the Weberian sense. In this paper, first this principle and its role in economic theorizing is discussed. It is also explained why it makes sense to use a micro-foundation and, therefore, employ the rationality assumption in economic models. Then, with reference to the ‘bounded rationality’ approach, the informational assumptions are discussed. Third, we address the assumption of self-interest which is often seen as a part of the rationality assumption. We conclude with some remarks on handling the problems of ‘free will’ as well as ‘weakness of the will’ within the economic approach. |
| Keywords: | rationality, self interest, micro-foundation, bounded rationality |
| JEL: | B41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1410&r=hpe |
| By: | Frederick van der Ploeg |
| Abstract: | After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by J.M. Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies, however, are the inability to predict a pro-cyclical real wage in the face of demand shocks, the absence of inventories, credit constraints and bankruptcies in explaining the business cycle, and no effect of the nominal as well as the real interest rate on aggregate demand. Furthermore, they fail to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured. |
| Keywords: | Keynesian economics, New Keynesian Phillips curve, monopolistic competition, nominal wage rigidity, welfare, pro-cyclical real wage, inventories, liquidity, bankruptcy, unemployment, monetary policy |
| JEL: | E12 E32 E63 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1424&r=hpe |
| By: | John Whalley |
| Abstract: | This paper contrasts the modern use of the assumption that rationality guides individual economic behaviour, as reflected in simple models of utility and profit maximization, to literature between 1890 and 1930 which sharply challenged the use of such an assumption, as well as to later literature in economic psychology from Herbert Simon onwards which sees economic (and other) cognitive processes in different ways. Some of the earlier literature proposed objective and operational notions of rationality based on the availability of information, ability to reason (cognitive skills), and even morality. Learning played a major role in individuals achieving what was referred to as complete rationality. I draw on these ideas, and suggest that developing models in which economic agents have degrees (or levels) of economic cognition which are endogenously determined could both change the perceptions economists have on policy matters and incorporate findings from recent economic psychology literature. This would remove the issue of whether economic agents are dichotomously rational or irrational, and instead introduce continuous metrics of cognition into economic thinking. Such an approach also poses the two policy issues of whether raising levels of economic cognition should be an objective of policy and whether policy interventions motivated by departures from full economic cognition should be analyzed. |
| Keywords: | learning, complete rationality |
| JEL: | B00 B10 B50 D00 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1445&r=hpe |
| By: | L. Andreozzi |
| Abstract: | Hayek’s approach to cultural and institutional evolution has been frequently criticized because it is explicitly based on the controversial notion of (cultural) group selection. In this paper this criticism is rejected on the basis of recent works on biological and cultural evolution. The paper’s main contention is that Hayek employed group selection as a tool for the explanation of selection among several equilibria, and not as a vehicle for the emergence of out of equilibrium behavior (i.e. altruism). The paper shows that Hayek’s ideas foreshadowed some of the most promising developments in the current literature on the emergence of norms. |
| JEL: | B31 B41 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2005-03&r=hpe |