No, the NK model is neither elegant nor useful. The IS/LM model was useful — but incomplete — because its core equations summarize observable empirical relationships between aggregates. The attempt to graft a forward looking ‘Phillips curve’ onto the model was an unmitigated disaster. @jasonfurman @FrancoisGeerolf @monacelt 1. The Euler equation is an elegant description of the first order condition of a representative agent with perfect foresight. That agent does not exist. A much better foundation for understanding how consumption moves over time was Friedman’s permanent income hypothesis. And since the work of Truman Bewley, we have a firm foundation for that equation that is grounded in borrowing constraints and incomplete markets in a heterogeneous agent model. 2. The NK Phillips curve does not characterize any observable empirical regularity. It never has. The original Phillips curve, a connection between wage inflation and unemployment in UK data, disappeared soon after Phillips published his eponymous article. The reason it takes a semester to teach the NK Phillips curve is that it requires a set of ugly non refutable theoretical contortions that only a mother could love. 3. The NK model has no unemployment. People voluntarily change their labor supply behavior in response to ‘shocks’, the consequences of which are correctly forecast. That assumption does not fit with what we know about labor markets. I blogged about that here rogerfarmer.com/rogerfarmerb… 4. The NK model assumes that employment (not unemployment) fluctuates around a stationary ‘natural rate of unemployment’. I wrote about that here static1.squarespace.com/stat… Fed economists spend countless hours attempting to estimate this ‘natural rate’. This is a Sisyphean task since the unemployment rate in data is essentially a random walk. The correct strategy at this point is to abandon much of the rational expectations revolution and to reconstruct macroeconomics beginning with what we knew circa 1960. This, I believe, is already beginning. There is a large body of theorists working on Bewley models and that group has concluded that rational expectations was a misstep. See, for example, the recent working paper by @ben_moll benjaminmoll.com/wp-content/… I am not as convinced as Ben, that our models must be nonlinear with global solution methods since, if Ben’s approach is successful, even linearized models in aggregates will likely display very different properties from either NK or classical RBC economies. But dropping the full implications of rational expectations is a promising way forward.

This piece from @psantacl explains the error in the degrowth agenda furthered by @PikettyWIL @stiglitzian and others who signed the @guardian article theguardian.com/commentisfre… @JonSteinsson @albertobisin It is well worth reading. If you teach undergraduates: make sure they read @psantacl’s arguments. The level of hubris demonstrated by the signers of the Guardian piece is extraordinary.

Barnaby Philip John Webber 11/01/2004-13/06/2023 💔 If you can, share these images of the beautiful soul stolen from us by the worst of humanity. Let his face today burn bright. Barney, I promise you there will be accountability 💛💚 For You. For Grace. For Ian.

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Another comment: all this is a sad sign of intellectual desperation of the left - reduced to massaging some of the data - and disregarding the rest - to fit fundamentally failed policies … one can be on the left in terms of values and objectives (as I consider myself) and still accept good economics and solid empirical evidence to design possibly successful (at least not yet failed) policies.

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Last week I published "The Fatal Conceit, Renewed." Today I publish its companion: a catalogue of the methodological errors in the work of Thomas Piketty and Mariana Mazzucato. The errors are not peripheral. They are devastating — and they all lean in the same direction. In econometrics, we have a name for an estimator whose errors all point one way: biased. In politics, we also use the same name. Why spend the effort taking these two apart? Because they are dangerous. Piketty and Mazzucato are the intellectual darlings of today's left. They supply a veneer of scholarly respectability to what the left is forever seeking: a justification for higher taxes and more state intervention. The oldest idea in politics — that a few enlightened people know better than the rest of us what to do with our money. The fame is real. The findings are not. Here is the audit.

I don't know what Piketty, Stiglitz, and co. are smoking. Global poverty rates have never been lower. Progress on basic global health and wellbeing measures has been amazing over the past few decades. "End of the road"?!? Come again!?! theguardian.com/commentisfre…

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A tribute volume dedicated to Hoover scholar John B. Taylor discusses his life, his scholarly and government work, and the profound impact of his eponymous "Taylor rule." Learn more in a new Defining Ideas excerpt: hoover.org/research/celebrat…

An honor to co-author an article in this volume on John Taylor. Essentially every central bank around the world calculates the Taylor Rule as a reference. John Taylor will easily be one of the economists alive today whose work will still be studied one hundred years from now.

This is a full radical degrowth agenda. Sad to see

C’est une opération marketing. Le débat honnête n’a pas de sens désormais. Vous avez fait, avec d’autres, votre possible pour challenger l’argumentaire branlant de GZ en espérant probablement une correction. Elle n’arrivera jamais. Ce n’est plus de la science mais de la vente.

Le terme "incompétent" est fort. Mais il faut admettre que "sloppy" et "bâclé" s'appliquent très bien. J'ai quatre articles qui montrent exactement comment lui, Saez et Zucman ont coupé les coins ronds en mautadine. Depuis je n'accepte aucune de leurs affirmations sans moi-même aller voir l'architecture des données. Voir:

This is utter nonsense. Zucman's mentor Piketty manipulated the UK data to show rising wealth inequality, when it has been flat for decades. Data duplicity is a clear and recurring pattern for these two Frenchmen.

I agree with this assessment from @DrJStrategy: To paraphrase Greenspan “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.” Central bankers are acting in a world of uncertainty not of risk ; a distinction made by Frank Knight. Economic models are models of risk. Basing policy on models that attribute an unwarranted degree of confidence to decisions is hubris and likely to lead to bad outcomes. Central bankers would do well to follow Wittgenstein’s advice: “Whereof one cannot speak, thereof one must be silent.”

I have worked with @BrianCAlbrecht on questions closely related to the issues of stability analysis that @IvanWerning and Lorenzoni have been wrestling with recently. Some of our papers related to this topic: link.springer.com/article/10… link.springer.com/article/10… onlinelibrary.wiley.com/doi/… And some of my observations regarding this topic in general: 1. A perfectly competitive general equilibrium describes a situation where agents know everything they need to know and where the price system enables agents to execute all trades to reach a Pareto efficient allocation. 2. This mechanism of trade through the competitive price system is also very minimalistic in the sense that agents use a minimal amount of information. 3. This competitive general equilibrium can be understood as a steady-state of a learning process operating in a reasonably "fixed" or stable environment, which features imperfectly competitive markets that become more competitive as information "percolates" over the interested parties and profit margins tend to be reduced over time. 4. Macroeconomic issues such as inflation and business cycles that generate fluctuations in unemployment and output are intimately related to this concept of "agents learning towards general equilibrium." 5. That is, if the agents in the economy are very "flexible" and "smart," the resulting reaction of the economic system to unanticipated exogenous shocks will result in quick adjustment and therefore low levels of output and unemployment fluctuations. 6. Random/directed search theory is intimately related to these issues. Hence, why the new monetarist economists such as @1954swilliamson and Randy Wright are tackling money and macro topics using search, and why we have labor search literature to explain why unemployment occurs in "equilibrium." Although I think most of lacks an explicit approach to learning and "convergence process to GE over time," which I tried to bridge in my job market paper (link.springer.com/article/10…). Overall, I think that this "convergence to GE studies" field is enormous and ultimately the field in economics that has an intimate relationship to the evolution of economic theory over the last 80 years, and that there is still a lot (perhaps most) of stuff to be done.

Great thread from @drmtgr

Il faut se frayer son chemin, c'est un pari mais moi je suis globalement très content de ma situation

Great post from @MZunigaP about the founder of the UCLA school ht @BrianCAlbrecht