Via Brad DeLong I found this piece by James Morely. In it Morely provides a thoughtful but thorough smackdown on some of the claims made by proponents of "modern" macro. It was an interesting read throughout and just the fix I needed after reading this Fed economist's pejorative and arrogant take on economic bloggers. This Fed economist recieved his just due from Scott Sumner.
Update: Matthew Yglesias responds to this Fed economist.
Update II: Mark Thoma, Ryan Avent, Nick Rowe, Brad DeLong, Arnold Kling, Will Wilkinson and Richard Green respond.
Update: Matthew Yglesias responds to this Fed economist.
Update II: Mark Thoma, Ryan Avent, Nick Rowe, Brad DeLong, Arnold Kling, Will Wilkinson and Richard Green respond.
I'm having a quick look at the Morely piece and you know, I think he's building a straw man here.
ReplyDeleteHe has that example where the only source of fluctuations are due to "technology" shocks and says that it's somewhat implausible that all GDP fluctuations are from technology shocks.
Well, suppose we change "technology" to productivity. Firt of all, this is more correct in the model. Second of all, it becomes much more plausible that negative productivity shocks happen all the time. After all, when the consumption or inestment demand shifts from one sector to another, say demand for new housing falls, then to the extent that our aggregate stock of labour and capital are tooled to producing housing we will be, for a time, less productive at making whatever is now being demanded. Thus, productivity shocks, broadly construed could be argued to explain most GDP fluctuations.
But really my point is this, his critique makes the same mistake he accuses economists of. If the idea is to model the non-neutrality of monetary policy then saying all the real shocks are productivity shocks may not impair the usefulness of the model because the model only needs to capture the response to the shock, what the shock actually is may not matter (I'm thinking NK or RBC models here).