Tag Archives: Microeconomics

Ultimately the conflict between 1978‐era macro and modern macro comes down to the market‐clearing and continuous utility maximization of the DSGE consumer, in contrast to the solid NMC foundation of 1978‐era macro. In DSGE models there are no Clower‐Patinkin‐Barro‐ Grossman constraints that in a recession push effective demand curves to the left of notional demand curves and force households and firms to act against their will by cutting consumption when current income declines, or by cutting jobs when current sales fall below production and
force inventory decumulation. Current discussions in modern business cycle macro about elasticities of labor supply curves or labor demand curves (e.g., Hall 2009) are irrelevant, because Patinkin‐Clower constrained households and firms are pushed off these notional curves by economywide rationing in periods of excess demand.  Read more...