For concreteness, think of a controlled experiment in a natural science as an example of a closed system. The conditions of an experiment controlled in this sense are never met or approximated in macroeconomics. (Adding more variables to the right handside of our regression equations will never get us there). But in constructing intertemporal models – such as in DSGE – we insist on the make-believe that the macroeconomy is a closed system
Link found here, thanks to a pointer from Mark Thoma.
Leijonhufvud was an early influence on me, and I still feel a strong affinity towards him.
They make it sound like him getting tenure was a coin flip. Funny how often that is the story. But on the other hand, considering he didn’t pick the prevailing research program maybe he shouldn’t have. I think you understand that I’m kidding.
That quote is spot on. If only more macroeconomists were so honest.
>> The ineffectiveness of monetary policy in present circumstances has just about nothing to do with the zero lower bound to interest rates that so many economists have agonized about. The reason lies rather in the ages-old maxim of bankers: Never lend money to people who need it! p11 <<
It's much longer than a blog post! But this one is setting up for future lectures. It does seem he's claiming all the Dyn Sys Gen Equib models are wrong and, even with ever increasing frictions, will continue to be wrong.
I think so, too, but more because of the basic issue that humans look for an explanation about human behavior in order to make money on that, but when enough do make money, that induces the behavior to change.