In recent years, the project of providing microeconomic foundations for macroeconomics has taken on new urgency. Some philosophers and economists have challenged the project, both for the way economists actually approach microfoundations and for more general anti-reductionist reasons. Reductionists and anti-reductionists alike, however, have taken it to be trivial that the macroeconomic facts are exhaustively determined by microeconomic ones. In this paper, I challenge this supposed triviality. I argue that macroeconomic properties do not even globally supervene on microeconomic ones. (...) This is simply a consequence of the difference in the explanatory goals of the respective fields, which implicitly carve out the microeconomic property set in such a way that it underdetermines macroeconomic properties. It means, however, that microeconomics-based foundations for macroeconomics are inadequate in principle. (shrink)

Macroeconomics: An Introduction, provides a lucid and novel introduction to macroeconomic issues. It introduces the reader to an alternative approach of understanding macroeconomics, which is inspired by the works of Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and Piero Sraffa. It also presents the reader with a critical account of mainstream marginalist macroeconomics. The book begins with a brief history of economic theories and then takes the reader through three different ways of conceptualizing the macroeconomy. (...) Subsequently, the theories of money and interest rates, output and employment levels, and economic growth are discussed. The book ends by providing a policy template for addressing the macroeconomic concerns of unemployment and inflation. The conceptual discussion in Macroeconomics is situated within the context of the Indian economy. Besides using publicly available data, the contextual description is instantiated using excerpts from works of fiction by Indian authors. (shrink)

Causality in Macroeconomics examines causality while taking macroeconomics seriously. A pragmatic and realistic philosophy is joined to a macroeconomic foundation that refines Herbert Simon's well-known work on causal order to make a case for a structural approach to causality. The structural approach is used to understand modern rational expectations models, regime switching models, Granger causality, vector autoregressions, the Lucas critique, and concept exogeneity. Techniques of causal inference based on patterns of stability and instability in the face of identified (...) regime changes are developed and illustrated in two empirical case studies. (shrink)

Macroeconomic dynamics and the at-risk-of-poverty population in Slovakia This paper deals with analysis and presentation of the core findings under the EU SILC 2009 project. Particularly we are oriented on study of the socially vulnerable groups of population identified according their income situation. As a sorting criterion for this purpose we use the standard methodology set by OECD and Eurostat. It means the 60% of the national median equivalized disposable income is applied for this criterion as the poverty threshold. The (...) national income variable is firstly calculated as a total income for each surveyed household and dived by the equivalized size of household. By this procedure the households of various structures are transformed onto generally accepted scale. The special attention of our study is oriented on the cluster of population living on income below the poverty threshold. For this population we calculate so called social deficit. Through this value we show the volume of financial means needed to upgrade the living standard of the population living bellow poverty threshold at least to the poverty threshold level.Special section of the paper is devoted to study of relation among the core macroeconomic indicators and level and size of the at-risk-of-poverty population during the period of last economic development, including both economic growth and economic recession. According our tentative findings we did not find the significant impact of economic growth on the status of socially vulnerable population. This finding however should be studied in broader context, with longer time series of relevant data and with broader set of explanatory variables. (shrink)

Argues that ontological reduction of macroeconomics to microeconomics is untenable. Existence of macroeconomic aggregates; Microfoundations of macroeconomics; Examinations of the general price level; Limits of the scientific development of microeconomics.

Macroeconomic fluctuations in interest rates, exchange rates, and inflation can be considered sources of good or bad “luck” for corporate performance if management is unable to adjust operations to these fluctuations. Based on a sample of 2,091 US firms, we decompose the impacts of macroeconomic fluctuations on three measures of CEO compensation. Our study provides empirical support for the importance of considering macroeconomic fluctuations in designing CEO incentive schemes. It adds to the managerial power literature on moral hazard and CEO (...) compensation by pinpointing the obvious risk that the CEO in an asymmetric and non-linear reward system will be inclined to prioritize his/her own cash flow at the expense of fulfilling an assumed agency role. The policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for. (shrink)

In these two volumes, a group of distinguished economists debate the way in which evidence, in particular econometric evidence, can and should be used to relate macroeconomic theories to the real world. Topics covered include the business cycle, monetary policy, economic growth, the impact of new econometric techniques, the IS-LM model, the labour market, new Keynesian macroeconomics, and the use of macroeconomics in official documents.

Jean-Paul Fitoussi needs no introduction as one of the world's foremost Macroeconomists of his generation. This celebration of his work includes contributions from Nobel Prize - winning economists Robert W. Clower and Robert Solow as well as Olivier Blanchard and leading economic theorist, Edmond Malinvaud.

In these two volumes, a group of distinguished economists debate the way in which evidence, in particular econometric evidence, can and should be used to relate macroeconomic theories to the real world. Topics covered include the business cycle, monetary policy, economic growth, the impact of new econometric techniques, the IS-LM model, the labour market, new Keynesian macroeconomics, and the use of macroeconomics in official documents.

This book is an investigation of the methodological and epistemological foundations of macroeconomic theory, based on an examination of the theories of Keynes and Lucas. It is divided into two parts. In the first Professor Vercelli discusses the methodological issues which lie behind the conflict among different schools of thought in macroeconomics. These issues are central to the current debate not only in many branches of economics, but also in other scientific disciplines. The traditional point of view of science (...) based on equilibrium, stability and determinism has been increasingly challenged by a new point of view in which disequilibrium, instability and uncertainty play a crucial role. This, the author argues, is bound to put macroeconomics in a new, more promising position. In the second part of the book the author compares the two main alternative research programmes in macroeconomics: that outlined by Keynes in his 'General Theory', and that suggested by Lucas, the leader of the new classical economists. (shrink)

Source: Author: Mohsen Mehrara, Yazdan Gudarzi Farahani, Farzan Faninam, Abbas Rezazadeh Karsalari This paper examines the relationship between stock market index and macroeconomic policies on Iran's economy using quarterly data in the period 1999-2013. This study employed cointegration test and vector autoregressive models to examine relationships between the stock market index and the macroeconomic variables. The empirical results reveal that a positive money shock can increase stocks return. According to impulse responses, the government expenditure had a slight impact on stocks (...) return in the short term. But the government expenditure has a positive effect on exchange index in long run. Also the effect of taxes on the stock's price index is negative, so that it reaches its maximum level after the third lag and then alleviates. The GDP shock has positive effect on the stock's price index. Increase in production level leads to increase in earnings and profitability, leading to a positive response from stocks index. Therefore the results showed that the macroeconomic variables such as inflation, exchange rate and GDP have significant effects on Tehran exchange price index. So the hypothesis that the improving economic factors can have a useful role in the booming capital market is confirmed. Also the effect of fiscal policy factors such as tax revenues and government expenditures is more than monetary policy factors on stock returns. ]]>. (shrink)

Research on UBI has blossomed in recent years, with a particular focus on conducting experiments with policies that share features with a UBI, microsimulation analysis and public opinion surveys. However, a common drawback with many of these approaches is the difficulty with examining ‘general equilibrium’ or ‘community’ effects. Macroeconomic modelling is one tool used to explore these more difficult questions of what would happen if a UBI was implemented at the national level. In this paper, a review of existing analysis (...) of the macroeconomic effects of a UBI offers an insight into the assumptions, approaches and results of these studies and how these are interlinked. Recommendations are made to increase the diversity of models used and the mechanisms and contexts explored. (shrink)

ABSTRACTWe investigate the applicability of Rodrik’s accounts of model selection and horizontal progress to macroeconomic DSGE modelling in both academic and policy-oriented modelling contexts. We argue that the key step of identifying critical assumptions is complicated by the interconnectedness of the common structural core of DSGE models and by the ad hoc modifications introduced to model various rigidities and other market imperfections. We then outline alternative ways in which macroeconomic modelling could become more horizontally progressive.

Macroeconomic events often require individuals and policy-makers to make decisions that they are not accustomed to making. For example, a sovereign debt crisis makes it necessary to either default on government debt, increase taxes, cut public spending or to impose a mixture of these measures. I argue that decisions on such matters are not derived from deep preferences; they require reflections and judgement under uncertainty. Past experiences and the interaction with other individuals are likely to influence the salience of preferences (...) in the situations of decision making. Using a simple model, I illustrate how the salience of preferences changes with different degrees of individuality and conformity. Individuality is associated with the importance of private habits, while conformity is related to the perceived dissonance between initial intuitions and social opinions. The results obtained from simple simulation exercises stress that a high degree of conformity or a low degree of individuality may lead to overreactions when social opinion makers err for a short period of time. At the same time, a low degree of conformity or a high degree of individuality or leads to delayed adjustments to new circumstances. (shrink)

The outline of modern macroeconomics took shape in Britain in the early nineteenth century thanks, in part, to David Ricardo, one of the most influential economists of the time. Britain was challenged by monetary inflation, industrial unemployment and the loss of jobs abroad. Ricardo pointed the way forward. As a financier and Member of Parliament, he was well versed in politics and commercial affairs. His expertise is shown by the practicality of his proposals, including the resumption of the gold (...) standard, which was essential given the destabilizing policy of the Bank of England. Ricardo's expertise appears also in his debate with T. R. Malthus about whether an industrial economy can suffer a prolonged depression. Say's Law of Markets and the Quantity Theory of Money figure prominently in his works, but not in an extreme form. He was instead a subtle theorist, recognizing the non-neutrality of money, trade depressions and unemployment. (shrink)

The Methodology of Empirical Macroeconomics stakes out a pragmatic middle-ground between traditional, prescriptive economic methodology and recent descriptive methodology. The former is sometimes seen as arrogantly telling economists how to do their work and the latter as irrelevant to their practice. The lectures are built around a case study of a concrete example of macroeconomic analysis. They demonstrate that economic methodology and the philosophy of science offer insights that help to resolve the genuine concerns of macroeconomists. Some examples of (...) questions addressed include: What is the relationship between theoretical models and empirical observations? What is the relevance of macroeconomics to policy? Should macroeconomics be viewed as a special case of microeconomics? What is the place of long-standing philosophical issues in macroeconomics, such as the scope and nature of economic laws, the role of idealizations, methodological individualism, and the problem of causality? (shrink)

The global financial crisis and ensuing weak growth have increased interest in macroeconomic issues within comparative political economy. CPE, particularly the dominant Varieties of Capitalism approach, has based its analyses on mainstream economics, which limits analysis of the relation between distribution and growth and neglects the role finance plays in modern economies. It overstates the stability of the capitalist growth process and understates the potential effectiveness of government interventions. Baccaro and Pontusson have suggested a post-Keynesian theory of distribution and growth (...) as an alternative. This article generalizes their point. PK theory highlights the instability of the growth process and lends itself to an analysis of income distribution and power relations. The article identifies the analysis of financialization and financial cycles, the understanding of neoliberal growth models, and the political economy of central banks as areas where PK economics provides specific insights for CPE. It also highlights that these arguments have important implications for government policy in an era of secular stagnation with ongoing social, distributional, and economic crises. (shrink)

The development of the endogenous growth model rekindled interest in growth theory. In contrast to the neo-classical model, long-run endogenous growth emerged as an equilibrium outcome, reflecting the behaviour of optimizing agents in the economy. This book brings together a number of contributions in growth theory and macroeconomic dynamics, reflecting these developments and the ongoing debate over the relative merits of neo-classical and endogenous growth models. It focuses on the emergence of three important aspects: First, it develops growth models that (...) extend the underlying theory in different directions. Second, it addresses one of the concerns of the literature on growth and dynamics: the statistical properties of underlying data and the effort to ensure that growth models are consistent with empirical evidence. Third, it discusses the increasingly international focus of macrodynamics and growth theory, an inevitable consequence of the integration of the world economy. (shrink)

This book offers an excellent survey of various macroeconomic topics that feature prominently in the research agenda and have inspired both theoretical and policy debate. The book presents an authoritative and comprehensive summary and original critique of macroeconomic approaches by a scholar whose own contribution to the field is considerable.

Macroeconomics is evolving in an almost dialectic fashion. The latest evolution is the development of a new synthesis that combines insights of new classical, new Keynesian and real business cycle traditions into a dynamic, stochastic general equilibrium model that serves as a foundation for thinking about macro policy. That new synthesis has opened up the door to a new antithesis, which is being driven by advances in computing power and analytic techniques. This new synthesis is coalescing around developments in (...) complexity theory, automated general to specific econometric modeling, agent-based models, and non-linear and statistical dynamical models. This book thus provides the reader with an introduction to what might be called a Post Walrasian research program that is developing as the antithesis of the Walrasian DSGE synthesis. (shrink)

This is a survey of bounded rationality, an area of theoretical macroeconomics which is receiving increased attention. The book is written by a leading macroeconomist who outlines the issues involved, describes some of the analytic tools that are being used, and shows how they can be applied in a range of models. It points to further potential positive developments of the theory as well as some of its limitations.

This paper has two goals. The first is to fill a gap in the literature on inductive risk by exploring the relevance of the notion of inductive risk to macroeconomics and monetary policy. The second goal is to draw some general lessons about inductive risk from the case discussed. The most important of these lessons is that the notion of inductive risk is no less relevant to the relationship between the proximate and distal goals of policy than it is (...) to the relationship between policies and their goals. (shrink)

Stock markets accurately reflect countries’ economic health, and stock returns are tightly related to economic indices. One popular area of financial research is the factors that influence stock returns. Several investigations have frequently cited macroeconomic factors, among numerous elements. Therefore, this study focuses on the empirical analysis of the relationship between macroeconomic factors and stock market returns. When a stock market becomes increasingly volatile, it becomes susceptible to economic uncertainty news, and information on social media platforms. Thus, we incorporated a (...) new dimension of economic uncertainty news sentiment for stock return predictions. We employed the daily data ofgold index, crude oil price, interest rate, exchange rate, and stock returns for a set of countries from January 2010 to December 2020. Subsequently, to compute coefficients, we conducted a regression analysis using one of the more sophisticated approaches: single-layer neural networks and ordinary least square regression. In addition, we only computed EUNS for the period of the fiscal budget announcement for the US, Turkey, and Hong Kong. The results indicate that the gold index, interest rate, and exchange rate are highly significant and negative macroeconomic factors for all analyzed countries. These findings also indicate that EUNS is important and detrimental for projecting stock returns. (shrink)

In his recent paper in the Journal of Economic Methodology, Tobias Henschen puts forth a manipulationist definition of macroeconomic causality that strives for adequacy. As the notion of ‘adequacy’...

This note focuses on George Soros's challenge to macroeconomics and finance theory that any valid methodology of social science must explicitly recognize fallibility in a Knightian sense. We use a simple algebraic example to sketch how extant models formalize fallibility. We argue that contemporary theory's epistemological and empirical difficulties can be traced to assuming away fallibility in a Knightian sense. We also discuss how imperfect knowledge economics provides a way to open mathematical models to such fallibility, while preserving economics (...) as an empirical science. (shrink)

The allocation of healthcare resources takes place at two distinct levels. At the macroeconomic level, policymakers decide on budgets, staffing, cost‐effectiveness thresholds, clinical guidelines and insurance payments; at the microeconomic level, healthcare professionals decide on whom to treat, what the appropriate treatment is, how much time and effort should each patient receive and how urgent the need for care is. At both levels, there is a constant social need for just allocation. Policymakers are mostly guided by abstract principles of justice, (...) thinking in terms of groups of patients, epidemiological data, impersonal statistics and economic costs. On the other hand, healthcare professionals understand the need for justice at a more personal level, as they interact with patients and, in a sense, put theory into practice. Nurses hold a unique position in healthcare systems, as, traditionally, they are closer to patients than other health professionals. This means that they have a firsthand view of the effect that their decisions have on specific patients and, therefore, nurses tend to get more influenced by their personal feelings, values and beliefs at the microeconomic level. This presentation shall examine the gap between abstract macroeconomic and concrete microeconomic health resources allocation decisions, with a particular emphasis on the role of the nurse. (shrink)

In this study, we examine the equity premium of seventeen nonfinancial sectors covering sample 306 firms using monthly data from January 2002 to December 2018. Two-stage least square method is applied to estimate the macro-based multifactor model. It is found that the market premium and the interest rate factors are significantly affecting the industry equity premium of all the nonfinancial sectors. However, there exists a positive effect of other macroeconomic variables such as money supply, foreign direct investment, and industrial production (...) which is different for the different sectors based on its nature of product and services they offered. The industries based on their product development which are linked to particular macroeconomic variables have more effect than others such as increase in money supply which cannot increase the sale of pharmaceutical products until needed. Similarly, an interesting insight reveals that industries producing seasonal goods, e.g., food producing, are not very much affected by macroeconomic variables but the change in seasons and similar results also revealed for tobacco industry. (shrink)

The existing research aims to seek the herding effects on stock returns at the industry level in Pakistan Stock Exchange. Moreover, the relationship between stock returns and herding has been studied by taking some macroeconomic and fundamental control variables. Herding is actually imitating other’s behaviour. This phenomenon indicates a situation where the investors follow the crowed and ignores their personal information, despite knowing the correctness of their information. Herd behaviour may drive from fundamental factors leading to efficient markets. However, it (...) may not be associated with fundamental information causing unstable prices. The stock price data of PSX listed companies from 1999 to 2017 have been the point of focus. The underlying herding measure was the cross-sectional absolute deviation, proposed by Chang et al.. The significant analysis technique facilitating the current research is pooled mean group /panel autoregressive distributed lag approach. Findings revealed that some sectors are evident for positive effect of herding on stock returns, whereas some others are witnessed for its negative effects on stock returns, in both long run and short run. As far as the control variables are concerned, they demonstrated both significant and insignificant effects on stock returns in different sectors of PSX. The study has important implications for policymakers. (shrink)

Most theories in economics and finance predict what people will do, given what they know about the world around them. But what do people know about their environments? The study of information choice seeks to answer this question, explaining why economic players know what they know--and how the information they have affects collective outcomes. Instead of assuming what people do or don't know, information choice asks what people would choose to know. Then it predicts what, given that information, they would (...) choose to do. In this textbook, Laura Veldkamp introduces graduate students in economics and finance to this important new research. The book illustrates how information choice is used to answer questions in monetary economics, portfolio choice theory, business cycle theory, international finance, asset pricing, and other areas. It shows how to build and test applied theory models with information frictions. And it covers recent work on topics such as rational inattention, information markets, and strategic games with heterogeneous information.Illustrates how information choice is used to answer questions in monetary economics, portfolio choice theory, business cycle theory, international finance, asset pricing, and other areas Teaches how to build and test applied theory models with information frictions Covers recent research on topics such as rational inattention, information markets, and strategic games with heterogeneous information. (shrink)

This paper presents a view of the process of transition from planned command socialism to mixed market capitalism involving nonlinear complex dynamical phenomena. After the former institutional structure disappears a coordination failure can bring about macroeconomic collapse as in almost all of the former Soviet bloc or macroeconomic boom as in China. A closely linked phenomenon is the rise of the underground economy as inflation and income inequality increase. This can lead to a jump from one equilibrium to a very (...) different one as nonlinear social feedback processes operate in the transition. (shrink)

This paper presents a view of the process of transition from planned command socialism to mixed market capitalism involving nonlinear complex dynamical phenomena. After the former institutional structure disappears a coordination failure can bring about macroeconomic collapse as in almost all of the former Soviet bloc or macroeconomic boom as in China. A closely linked phenomenon is the rise of the underground economy as inflation and income inequality increase. This can lead to a jump from one equilibrium to a very (...) different one as nonlinear social feedback processes operate in the transition. (shrink)

The implications for how teach macroeconomics at the undergraduate level of the emergence of the multidisciplinary study of nonlinear complex dynamics are examined. A definition of complex dynamics is presented and a broad review of various applications in macroeconomics is made. Some particular implications are emphasized such as how complex dynamics raise serious doubts about the rational expectations assumption. Several models and approaches are suggested that can be used to make these ideas accessble to students.

The original version of this paper was written during a year spent at the Institute for Advanced Study, Princeton, New Jersey, U.S.A. and was prepared for presentation at the International Colloquium on Malthus, ‘Congrès International de Démographie Historique: Malthus Hier et Aujourd'hui', Paris, France, 27–29 May. 1980.

The book under review is critiqued with regard to its adherence, modification, and departure from John Maynard Keynes’s position. This review is weighted to emphasizing the role of "expectation" in Keynes’s work and its role in the book under review. The review seeks to develop an interpretation of the "psychology of society" or "structural rationality" in Keynes’s work and contrasts this with the positions of the authors in the book under review. Following this Keynes’s work is advocated as being highly (...) malleable and a corpus that can illuminate further research and policy prescription. (shrink)

This is the first full-length survey of current work which examines the compatibility of microeconomics and macroeconomics. Its particular distinction is that it makes accessible, to non-specialists, those extensive modern refinements of general equilibrium theory which are linked to macroeconomics and monetary theory. Part I traces the development and interlocking nature of two scientific research prgrams, macroeconomics and neo-Walrasian analysis. The five chapters in this part examine general equilibrium theory, Keynes' contribution, the 'neoclassical synthesis', and the Clower–Leijonhufvud (...) contributions to questions of systemic coordination. The four chapters of Part II place recent work on the micro-foundations of macroeconomics within a taxonomic scheme of Walrasian equilibrium, Walrasian disequilibrium, Edgeworthian equilibrium, and Edgeworthian disequilibrium. Part III, a single chapter, provides an overview of the subject and ventures some conclusions. (shrink)