Must-Read: I do wonder, in what sense can Prescottism--which in essence is putting the residual on the right-hand side as an explanatory variable plus throwing away all statistical evidence that, even so, your model does not fit--be thought to be a "relative success in accounting for [a] postwar experience" that includes 1979-1984? Noah Smith calls this: "gaslighting". I concur
: Romer v. Lucas: "[Robert] Lucas did not adopt and internalize Friedman’s approach to economic problem solving...
...but instead internalized the caricature he extracted from Samuelson’s Foundations: that mathematical analysis is the only legitimate way of doing economic theory, and that, in particular, the essence of macroeconomics consists in a combination of axiomatic formalism and philosophical reductionism.... This was both bad methodology and bad science, restricting the formulation of economic problems to those for which mathematical techniques are available to be deployed in finding solutions...
Must-Read: : My Keynesian Education: "Patinkin and I are both Walrasians, whatever that means...
...I don’t see how anybody can not be.... Patinkin’s problem was that... [his] version of the Walrasian model was already archaic by the end of the 1950s. Arrow and Debreu and McKenzie had redone the whole theory.... Fluctuations... were viewed as inducing disequilibrium adjustments, unrelated to anyone’s purposeful behavior, modeled with vast numbers of free parameters. For us, today, value theory refers to models of dynamic economies subject to unpredictable shocks, populated by agents who are good at processing information and making choices over time.... We are able to form a much sharper quantitative view of the potential of changes in policy to improve peoples’ lives than was possible a generation ago...
Must-Read: : Review of A Monetary History of the US: "In Kydland and Prescott’s original model, and in many (though not all) of its descendants...
...the equilibrium allocation coincides with the optimal allocation: Fluctuations generated by the model represent an efficient response to unavoidable shocks to productivity. One may thus think of the model... as a normative benchmark providing a good approximation to events when monetary policy is conducted well.... The theory’s relative success in accounting for postwar experience can be interpreted as evidence that postwar monetary policy has resulted in near-efficient behavior, not as evidence that money doesn’t matter.... The discipline of real business cycle theory has made it more difficult to defend real alternatives to a monetary account of the 1930s than it was 30 years ago. It would be a term-paper-size exercise, for example, to work out the possible effects of the 1930 Smoot-Hawley Tariff in a suitably adapted real business cycle model...
