Output, Interest and Prices: Part 0

A whirlwind tour through 300 years of macroeconomic thought!

May 27, 2021

Note to the Reader: The accompanying twitter video summary is available here:

On the history of macroeconomic thought: (Link to the actual post in the next tweet)

The history of macroeconomic thought is a story of how growth theory, monetary theory and business cycle theory came together into one discipline. Throughout this, there are three macroeconomic variables that have stood the test of time as being central: output, interest rates and prices.

As such, this history can be understood by examining the evolution of the equations describing and relating these variables. This begins with the buildup to the neoclassical consensus:

Bunnyhopping

Output, Interest and Prices: Part 1

Before Macroeconomics: The Old Classicals Before macroeconomics was a field unto itself, its precursors were the fields of political economy, monetary theory and business cycle theory as expounded upon by the Old Classical economists. Adam Smith and Jean-Baptiste Say were two of the leading political economists. In his 1776…

2 years ago · Trevor Chow

Then we arrive at the three counterrevolutions of the 1960s and 1970s:

Bunnyhopping

Output, Interest and Prices: Part 2

Counterrevolution 1: The Monetarists The flagbearer of monetarism was Friedman. Having already influenced macroeconomics via his permanent income hypothesis, his much more significant contribution was to come in the ideas of monetarism. He had three main contributions: the stability of the money demand function, the role of money supply fluctuations in t…

2 years ago · Trevor Chow

Finally, we conclude at the foundations of the modern research frontier:

Bunnyhopping

Output, Interest and Prices: Part 3

Salvaging Keynes: The New Keynesians So given the implausibility of RBC theory, did Keynesians just go quietly into the night? No. While the methodological implications of the New Classicals and the RBC theorists were damning for Old Keynesian theory, a new generation of researchers kept up the criticism of RBC theory while looking for ways to revive Key…

2 years ago · Trevor Chow

Doing so makes it apparent that, although our methodology has advanced by leaps and bounds, the increase in our knowledge on substantive macroeconomic questions has been far less than many might believe.