Posts Tagged ‘real business cycle’
Formation of the World Economics Association (WEA) a positive outcome from the Global Financial Crisis (GFC)
One positive aspect of the global financial crisis (GFC) is the clarity of the failure of neoclassical economics to predict the crisis and of its complicity in fermenting the crisis. This clarity of failure and complicity is positive because failure is a source of learning that is to take a new direction away from the neoclassical favoured by the American Economics Association and its journals and their hold on the profession. The newly formed World Economics Association (WEA) provides the economics profession such an avenue. An open letter to join the association is below. Read the rest of this entry »
Real Business Cycle (RBC) and Rational Expectations Hypothesis (REH) contributing to the Global Financial Crisis (GFC) and the Dynamite Prize
This article discusses how neoclassical economics has contributed to the Global Financial Crisis (GFC). In particular, how two neoclassical theories, the Real Business Cycle (RBC) and the Rational Expectations Hypothesis (REH) contributed to the GFC and how these theories are false and unscientific.
Edward C. Prescott and Finn E. Kydland were awarded the 2004 Nobel prize in economics for their work in developing the RBC and Robert E. Lucas Jr. was awarded the 1995 Nobel prize in economics for developing the REH. They have been nominated for The Dynamite Prize in Economics that is to be awarded to the three economists who contributed most to enabling the GFC. The Dynamite Prize in Economics nominates Prescott and Kydland ‘for jointly developing and popularizing “Real Business Cycle” theory, which by omitting the role of credit greatly diminished the economics profession’s understanding of dynamic macroeconomic processes’ and nominates Lucas for ‘his development of the rational expectations hypothesis, which defined rationality as the capacity to accurately predict the future, both served to maintain Friedman’s proposition that monetary factors do not affect the real economy and, in the name of “rigor”, distanced economics even further from reality than Friedman had thought possible.’ Read the rest of this entry »
G8 or G20 Protests and Computable General Equilibrium (CGE) modelling and its Dual Instability Problem
This article discusses why Computable General Equilibrium (CGE) models are important to the G8 or G20 protests and why CGE models are unsuitable for policy analysis for the following two reasons, CGE lacking microfoundations and the dual instability problem.
First, why are CGE models important to the G8 or G20 protests? An example of a global CGE model is the Global Trade Analysis Project (GTAP 2009) coordinated by the Centre for Global Trade Analysis, Department of Agricultural Economics, Purdue University. GTAP (2009) claims that their model provides a common language for global economic analysis; they cite the use of GTAP in three of the five quantitative studies at the 1995 conference of the WTO’s Uruguay Round Agreement and in virtually all the quantitative work for the 1999 Millennium Round of Multilateral Trade. This example indicates the credibility and perceived importance of CGE. Read the rest of this entry »
“This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
— John Maynard Keynes
A Tract on Monetary Reform (1923), 80.
Traditional economics has failed to predict the knock on effects of the financial crisis says the EU. The Eurace project is designed to remedy this failure, which uses an agent based modelling methodology as an alternative to the rational representative agent model that is a cornerstone of neoclassical economics. The post Progressing from game theory to agent based modelling to simulate social emergence further discusses agent based modelling. Read the rest of this entry »