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description= 15 posts published by Lars Syll during December 2017;
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31 dec 2017 at 15 12 posted in economics 3 comments the unsellability of dsge models private sector firms do not pay lots of money to use dsge models is one strong argument against dsge but it is not the most damning critique of it to me the most damning critiques that can be levelled against dsge models are the following two dsge models are unable to explain involuntary unemployment in the basic dsge models the labour market is always cleared responding to a changing interest rate expected lifetime incomes or real wages the representative agent maximizes the utility function by varying her labour supply money holding and consumption over time most importantly if the real wage somehow deviates from its equilibrium value the representative agent adjust her labour supply so that when the real wage is higher than its equilibrium value labour supply is increased and when the real wage is below its equilibrium value labour supply is decreased in this model world unemployment is always an optimal choice to changes in the labour market conditions hence unemployment is totally voluntary to be unemployed is something one optimally chooses to be although this picture of unemployment as a kind of self chosen optimality strikes most people as utterly ridiculous there are also unfortunately a lot of neoclassical economists out there who still think that price and wage rigidities are the prime movers behind unemployment dsge models basically explain variations in employment and a fortiori output with assuming nominal wages being more flexible than prices disregarding the lack of empirical evidence for this rather counterintuitive assumption lowering nominal wages would not clear the labour market lowering wages and possibly prices could perhaps lower interest rates and increase investment it would be much easier to achieve that effect by increasing the money supply in any case wage reductions were not seen as a general substitute for an expansionary monetary or fiscal policy and even if potentially positive impacts of lowering wages exist there are also more heavily weighing negative impacts management union relations deteriorating expectations of on going lowering of wages causing delay of investments debt deflation et cetera the classical proposition that lowering wages would lower unemployment and ultimately take economies out of depressions was ill founded and basically wrong flexible wages would probably only make things worse by leading to erratic price fluctuations the basic explanation for unemployment is insufficient aggregate demand and that is mostly determined outside the labour market obviously it s rather embarrassing that the kind of dsge models modern macroeconomists use cannot incorporate such a basic fact of reality as involuntary unemployment of course working with representative agent models this should come as no surprise the kind of unemployment that occurs is voluntary since it is only adjustments of the hours of work that these optimizing agents make to maximize their utility in dsge models increases in government spending leads to a drop in private consumption in the most basic mainstream proto dsge models one often assumes that governments finance current expenditures with current tax revenues this will have a negative income effect on the households leading rather counterintuitively to a drop in private consumption although both employment an production expands this mechanism also holds when the in famous ricardian equivalence is added to the models ricardian equivalence basically means that financing government expenditures through taxes or debts is equivalent since debt financing must be repaid with interest and agents equipped with rational expectations would only increase savings in order to be able to pay the higher taxes in the future thus leaving total expenditures unchanged why in the standard neoclassical consumption model used in dsge macroeconomic modelling people are basically portrayed as treating time as a dichotomous phenomenon today and the future when contemplating making decisions and acting how much should one consume today and how much in the future facing an intertemporal budget constraint of the form c t c f 1 r f t y t y f 1 r where c t is consumption today c f is consumption in the future f t is holdings of financial assets today y t is labour incomes today y f is labour incomes in the future and r is the real interest rate and having a lifetime utility function of the form u u c t au c f where a is the time discounting parameter the representative agent consumer maximizes his utility when u c t a 1 r u c f this expression the euler equation implies that the representative agent consumer is indifferent between consuming one more unit today or instead consuming it tomorrow typically using a logarithmic function form u c log c which gives u c 1 c the euler equation can be rewritten as 1 c t a 1 r 1 c f or c f c t a 1 r this importantly implies that according to the neoclassical consumption model changes in the real interest rate and consumption move in the same direction and it also follows that consumption is invariant to the timing of taxes since wealth f t y t y f 1 r has to be interpreted as present discounted value net of taxes and so according to the assumption of ricardian equivalence the timing of taxes does not affect consumption simply because the maximization problem as specified in the model is unchanged as a result households cut down on their consumption when governments increase their spendings mirabile dictu benchmark dsge models have paid little attention to the role of fiscal policy therefore minimising any possible interaction of fiscal policies with monetary policy this has been partly because of the assumption of ricardian equivalence as a result the distribution of taxes across time become irrelevant and aggregate financial wealth does not matter for the behavior of agents or for the dynamics of the economy because bonds do not represent net real wealth for households incorporating more meaningfully the role of fiscal policies requires abandoning frameworks with the ricardian equivalence the question is how to break the ricardian equivalence two possibilities are available the first is to move to an overlapping generations framework and the second which has been the most common way of handling the problem is to rely on an infinite horizon model with a type of liquidity constrained agents eg rule of thumb agents camillo tovar sure macroeconomic models have to abandon ricardian equivalence nonsense but replacing it with overlapping generations and infinite horizon models isn t that in terms of realism and relevance just getting out of the frying pan into the fire all unemployment is still voluntary intertemporal substitution between labour and leisure is still ubiquitous and the specification of the utility function is still hopelessly off the mark from an empirical point of view as one nobel laureate has it ricardian equivalence is taught in every graduate school in the country it is also sheer nonsense joseph e stiglitz twitter and as one economics blogger has it dsge modeling is taught in every graduate school in the country it is also sheer nonsense lars syll twitter krugman s misapplication of neoclassical growth models 30 dec 2017 at 11 11 posted in economics 5 comments the fallacies loanable funds theory commits might be explainable by the misapplication of some ideas and concepts of neoclassical growth models to the sphere of money and finance the ramsey and solow models are models of real investment only financial markets financial assets and financial saving do not play any role in those models there is only one good which for simplicity will be called corn corn has three functions it can be consumed invested and used as a means of payment since wages and interest payments are made with it full employment is assumed without money and other financial assets the only way units can save is to increase their tangible assets i e to invest since the problems of different financial saving plans are not dealt with in solow s model the model cannot be used to make any predictions about economic units financial saving behavior its inconsistencies and thus about the paradox of thrift neither in the short medium or long run there is no miraculous way of short run financial saving somehow being transformed into long run investment in tangible assets the two are simply quite different phenomena how pervasive this approach is is shown by eggertsson and krugman 2012 who add some features to a basic neoclassical model again no money but goods are borrowed and lent naturally potential lenders have to save some of their goods before they can lend them to borrowers but since in the real world money is normally not eaten or planted and keeps circulating in the economy when it is spent or lent those models cannot be any guide for the analysis of a monetary economy specifically what is true in a one good economy units have to consume less to lend and invest more is fundamentally wrong in a monetary economy fabian lindner this should come as no surprise paul krugman has repeatedly over the years argued that we should continue to use neoclassical hobby horses like ramsey style growth is lm and as ad models money and finance don t matter in mainstream neoclassical macroeconomic models that s true according to the classical dichotomy real variables output and employment are independent of monetary variables and so enables mainstream economics to depict the economy as basically a barter system but in the real world in which we happen to live money certainly does matter money is not neutral and money matters in both the short run and the long run the theory which i desiderate would deal with an economy in which money plays a part of its own and affects motives and decisions and is in short one of the operative factors in the situation so that the course of events cannot be predicted in either the long period or in the short without a knowledge of the behaviour of money between the first state and the last and it is this which we ought to mean when we speak of a monetary economy j m keynes a monetary theory of production 1933 pseudo vetenskapligt mumbo jumbo på svenska universitet 29 dec 2017 at 19 11 posted in education school 5 comments jag sprang nyligen på en sammanställning av genusdoktorsavhandlingar från 2014 många godbitar men en av dem var särskilt anmärkningsvärd nämligen nummer 19 i uppräkningen det handlar om doktors avhandlingen rum rytm och resande från linköpings universitet pdf sammanställningen sammanfattar avhandlingen undersöker järnvägstationer som fysiska platser och sociala rum ur könsperspektiv kimstad pendeltågsstation norrköpings järnvägsstation och stockholms centralstation ingår i studien resultaten visar att järnvägs stationerna reproducerar könsmaktsordningen och att detta påverkar både män som kvinnor som vistas där en doktorand har alltså ägnat minst 4 5 år och flera miljoner skatte kronor åt att besöka järnvägsstationer och komma fram till att järnvägs stationerna reproducerar könsmaktsordningen doktorandens chef har planerat detta arbete och chefens chefer har godkänt det dessutom har en betygskommitté med externa granskare bedömt och skrivit under på att doktorsavhandlingen håller måttet det var katten men det blir värre doktorsavhandlingen sammanfattas på engelska det börjar med results from the study show that individuals in different ways are affected by gendered power relations that dwell in rhythms of collective believes and in shape of materialized objects that encounter the commuters when visiting the railway station while the rhythms of masculine seriality contains believes of males as potentially violent as defenders and as bread winners the rhythms of female seriality contains believes of women as primary mothers and housewives of women as primary victim of sexual violence and of objectification of women s bodies as either decent or as sexually available to heterosexual men rytmer av könsmaktsordningen poetiskt ekvalist ja inför sådant tyckmyckentrutat pseudo vetenskapligt blaj kan man inte annat än taga sig för pannan mitt eget favoritexempel på detta vetenskapliga skojeri är hämtat ur ett nummer av pedagogisk forskning i sverige 2 3 2014 där författaren till artikeln en pedagogisk relation mellan människa och häst på väg mot en pedagogisk filosofisk utforskning av mellanrummet ger följande intressanta programförklaring med en posthumanistisk ansats belyser och reflekterar jag över hur både människa och häst överskrider sina varanden och hur det öppnar upp ett mellanrum med dimensioner av subjektivitet kroppslighet och ömsesidighet och så säger man att svensk universitets utbildning är i kris undrar varför demystifying trickle down 28 dec 2017 at 20 01 posted in economics 1 comment the causes of secular stagnation and the loanable funds theory 28 dec 2017 at 09 34 posted in economics 6 comments what are the causes of secular stagnation what are the solutions to revive growth and get the u s economy out of the doldrums one headline conclusion stands out the secular stagnation is caused by a heavy overdose of savings all these savings end up as deposits or loanable funds lf in commercial banks the glut in savings supply is so large that banks cannot get rid of all the loanable funds even when they offer firms free loans that is even after they reduce the interest rate to zero firms are not willing to borrow more in order to invest the result is inadequate investment and a shortage of aggregate demand in the short run which lead to long term stagnation as long as the savings investment imbalance persists this is clearly a depressing conclusion but it is also wrong ever since knut wicksell s 1898 restatement of the doctrine the loanable funds approach has exerted a surprisingly strong influence upon some of the best minds in the profession due to our inability to free ourselves from the discredited loanable funds doctrine we have lost the forest for the trees we cannot see that the solution to the real problem underlying secular stagnation a structural shortage of aggregate demand is by no means difficult use fiscal policy a package of spending on infrastructure green energy systems public transportation and public services and progressive income taxation and raise median wages the stagnation will soon be over relegating all the scholastic talk about the zlb to the dustbin of a christmas past servaas storm it is difficult not to agree with servaas here the loanable funds theory is in many regards nothing but an approach where the ruling rate of interest in society is pure and simple conceived as nothing else than the price of loans or credits set by banks and determined by supply and demand as bertil ohlin put it in the same way as the price of eggs and strawberries on a village market it s a beautiful fairy tale but the problem is tha...
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