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description= 15 posts published by Lars Syll during April 2016;
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Text of the page (random words):
they cannot even be asked nkm faces an uncomfortable trade off on the one hand general equilibrium theory has shown that preferences and behaviour of heterogeneous agents cannot simply be aggregated variances between individuals matter the sonnenschein mantel debreu problem states that choices may not be transitive the representative agent s ranking differs from individual rankings reactions to shock may be different on the other hand if people are assumed to be identical nkm may keep the representative agent but as a consequence the model has no interaction of agents no distribution problems no asymmetric information and no meaningful stock market the critique so far may appear as unfair as it neglects the various refinements that were proposed in order to develop and improve the basic model set up but these extensions of nkm due to the walrasian method yield many precisely looking results but do not grasp the impact of bank credit on goods demand market income and employment in a typical monetary economy heinz peter spahn the money multiplier neat plausible and utterly wrong 28 apr 2016 at 18 02 posted in economics 9 comments the neoclassical textbook concept of money multiplier assumes that banks automatically expand the credit money supply to a multiple of their aggregate reserves if the required currency deposit reserve ratio is 5 the money supply should be about twenty times larger than the aggregate reserves of banks in this way the money multiplier concept assumes that the central bank controls the money supply by setting the required reserve ratio in his macroeconomics just to take an example greg mankiw writes we can now see that the money supply is proportional to the monetary base the factor of proportionality is called the money multiplier each dollar of the monetary base produces m dollars of money because the monetary base has a multiplied effect on the money supply the monetary base is called high powered money the money multiplier concept is as can be seen from the quote above nothing but one big fallacy this is not the way credit is created in a monetary economy it s nothing but a monetary myth that the monetary base can play such a decisive role in a modern credit run economy with fiat money in the real world banks first extend credits and then look for reserves so the money multiplier basically also gets the causation wrong at a deep fundamental level the supply of money is endogenous one may rightly wonder why on earth this pet neoclassical fairy tale is still in the textbooks and taught to economics undergraduates giving the impression that banks exist simply to passively transfer savings into investment it is such a gross misrepresentation of what goes on in the real world that there is only one place for it and that is in the garbage can economic rebellion 24 apr 2016 at 08 35 posted in economics 8 comments listen to the program here mainstream economists like paul krugman and simon wren lewis think that yours truly and other heterodox economists are wrong in blaming mainstream economics for not being real world relevant and pluralist to krugman there is nothing wrong with standard theory and economics textbooks if only policy makers and economists stick to standard economic analysis everything would be just fine i ll be dipped if there s anything the last decade has shown us it is that economists have gone astray in their tool shed krugman s standard theory mainstream neoclassical economics has contributed to causing today s economic crisis rather than to solving it a small ray of hope 23 apr 2016 at 16 14 posted in economics 3 comments i overheard a conversation between two high school students this morning the first person was asking about which classes the second was going to take next one of those mentioned was microeconomics oh that s easy said the first you just have to remember that it s all rubbish they want you to believe that people are rational and that there s all this perfection in the world really responded the second that s really dumb i wonder why they do that it doesn t matter it s economics well maybe i ll take history instead at least i might learn something useful peter radford long run demand effects 23 apr 2016 at 12 44 posted in economics 1 comment in the standard mainstream economic analysis take a quick look in e g mankiw s or krugman s textbooks a demand expansion may very well raise measured productivity in the short run but in the long run expansionary demand policy measures cannot lead to sustained higher productivity and output levels in some non standard heterodox analyses however labour productivity growth is often described as a function of output growth the rate of technical progress varies directly with the rate of growth according to the verdoorn law growth and productivity is in this view highly demand determined not only in the short run but also in the long run given that the verdoorn law is operative expansionary economic policies actually may lead to increases in productivity and growth living in a world permeated by genuine keynes type uncertainty we can of course not with any greater precision forecast how great those effects would be so the nodal point is has the verdoorn law been validated or not in empirical studies there have been hundreds of studies that have tried to answer that question and as could be imagined the answers differ the law has been investigated with different econometric methods time series iv ols ecm cointegration etc the statistical and econometric problems are enormous especially when it comes to the question on the direction of causality given this however most studies on the country level do confirm that the verdoorn law holds conclusion demand policy measures may have long run effects macroeconomic just so stories you really do not want to buy 22 apr 2016 at 17 30 posted in economics comments off on macroeconomic just so stories you really do not want to buy thus your standard new keynesian model will use calvo pricing and model the current inflation rate as tightly coupled to the present value of expected future output gaps is this a requirement anyone really wants to put on the model intended to help us understand the world that actually exists out there thus your standard new keynesian model will calculate the expected path of consumption as the solution to some euler equation plus an intertemporal budget constraint with current wealth and the projected real interest rate path as the only factors that matter this is fine if you want to demonstrate that the model can produce macroeconomic pathologies but is it a not stupid thing to do if you want your model to fit reality i remember attending the first lecture in tom sargent s evening macroeconomics class back when i was in undergraduate very smart man from whom i have learned the enormous amount and well deserving his nobel prize but he said we were going to build a rigorous micro founded model of the demand for money we would assume that everyone lived for two periods worked in the first period when they were young and sold what they produced to the old held money as they aged and then when they were old use their money to buy the goods newly produced by the new generation of young tom called this microfoundations and thought it gave powerful insights into the demand for money that you could not get from money in the utility function models i thought that it was a just so story and that whatever insights it purchased for you were probably not things you really wanted to buy i thought it was dangerous to presume that you understood something because you had microfoundations when those microfoundations were wrong after all ptolemaic astronomy had microfoundations mercury moved more rapidly than saturn because the angel of mercury left his wings more rapidly than the angel of saturn and because mercury was lighter than saturn brad delong brad delong is of course absolutely right here and one could only wish that other mainstream economists would listen to him oxford macroeconomist simon wren lewis elaborates in a post on his blog on why he thinks the new classical counterrevolution was so successful in replacing older theories despite the fact that the new classical models were not able to explain what happened to output and inflation in the 1970s and 1980s the new theoretical ideas new classical economists brought to the table were impressive particularly to those just schooled in graduate micro rational expectations is the clearest example however once the basics of new keynesian theory had been established it was quite possible to incorporate concepts like rational expectations or ricardian eqivalence into a traditional structural econometric model sem the real problem with any attempt at synthesis is that a sem is always going to be vulnerable to the key criticism in lucas and sargent 1979 without a completely consistent microfounded theoretical base there was the near certainty of inconsistency brought about by inappropriate identification restrictions so why does this matter if mainstream academic macroeconomists were seduced by anything it was a methodology a way of doing the subject which appeared closer to what at least some of their microeconomic colleagues were doing at the time and which was very different to the methodology of macroeconomics before the new classical counterrevolution the old methodology was eclectic and messy juggling the competing claims of data and theory the new methodology was rigorous unlike brad delong wren lewis seems to be impressed by the rigour brought to macroeconomics by the new classical counterrevolution and its rational expectations microfoundations and lucas critique it is difficult to see why wren lewis s portrayal of rational expectations is not as innocent as it may look rational expectations in the neoclassical economists s world implies that relevant distributions have to be time independent this amounts to assuming that an economy is like a closed system with known stochastic probability distributions for all different events in reality it is straining one s beliefs to try to represent economies as outcomes of stochastic processes an existing economy is a single realization tout court and hardly conceivable as one realization out of an ensemble of economy worlds since an economy can hardly be conceived as being completely replicated over time it is to say the least very difficult to see any similarity between these modelling assumptions and the expectations of real persons in the world of the rational expectations hypothesis we are never disappointed in any other way than as when we lose at the roulette wheels but real life is not an urn or a roulette wheel and that s also the reason why allowing for cases where agents make predictable errors in the new keynesian models doesn t take us a closer to a relevant and realist depiction of actual economic decisions and behaviours if we really want to have anything of interest to say on real economies financial crisis and the decisions and choices real people make we have to replace the rational expectations hypothesis with more relevant and realistic assumptions concerning economic agents and their expectations than childish roulette and urn analogies rigorous and precise new classical models and that goes for the new keynesian variety too cannot be considered anything else than unsubstantiated conjectures as long as they aren t supported by evidence from outside the theory or model to my knowledge no in any way decisive empirical evidence has been presented no matter how precise and rigorous the analysis and no matter how hard one tries to cast the argument in modern mathematical form they do not push economic science forwards one single millimeter if they do not stand the acid test of relevance to the target no matter how clear precise rigorous or certain the inferences delivered inside these models are they do not per se say anything about real world economies proving things rigorously in mathematical models is at most a starting point for doing an interesting and relevant economic analysis forgetting to supply export warrants to the real world makes the analysis an empty exercise in formalism without real scientific value the real tail wagging 20 apr 2016 at 19 32 posted in economics 3 comments keynes s intellectual revolution was to shift economists from thinking normally in terms of a model of reality in which a dog called savings wagged his tail labelled investment to thinking in terms of a model in which a dog called investment wagged his tail labelled savings james meade to my sons and daughters personal 19 apr 2016 at 14 55 posted in economics varia comments off on to my sons and daughters personal at the end of every principle is a promise this one is for you david tora linnea amanda and sebastian pitfalls of meta analysis 19 apr 2016 at 10 28 posted in statistics econometrics 1 comment including all relevant material good bad and indifferent in meta analysis admits the subjective judgments that meta analysis was designed to avoid several problems arise in meta analysis regressions are often non linear effects are often multivariate rather than univariate coverage can be restricted bad studies may be included the data summarised may not be homogeneous grouping different causal factors may lead to meaningless estimates of effects and the theory directed approach may obscure discrepancies meta analysis may not be the one best method for studying the diversity of fields for which it has been used glass and smith carried out a meta analysis of research on class size and achievement and concluded that a clear and strong relationship between class size and achievement has emerged 10 the study was done and analysed well it might almost be cited as an example of what meta analysis can do yet the conclusion is very misleading as is the estimate of effect size it presents between class size of 40 pupils and one pupil lie more than 30 percentile ranks of achievement such estimates imply a linear regression yet the regression is extremely curvilinear as one of the authors figures shows between class sizes of 20 and 40 there is absolutely no difference in achievement it is only with unusually small classes that there seems to be an effect for a teacher the major result is that for 90 of all classes the number of pupils makes no difference at all to their achievement the conclusions drawn by the authors from their meta analysis are normally correct but they are statistically meaningless and particularly misleading no estimate of effect size is meaningful unless regressions are linear yet such linearity is seldom investigated or if not present taken seriously h j eysenck systematic reviews in sciences are extremely important to undertake in our search for robust evidence and explanations simply averaging data from different populations places and contexts is not physics and e...
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