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Lecture: Who is Who in Macro
(Historical Excursion)
Alemayehu Geda
Departments of Economics
University of London and Addis Ababa
University
May, 2006
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Macro Model and Macro Paradigms
Historical
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Excursion
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Historical Excursion
Great
Depressi
on
1929
Classical
Keynes
1936
Now….
Modigliani
1937
‘43
‘50
’70/80
Hicks
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Macroeconomic is Concerned:
 Aggregates:
Inflation, Output, unemployment…
 Action of Gov’t affects aggregates
 Fiscal
 Monetary
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Three Event for Evolution of Macro:
 Systemic
Data Collection
 Business Cycle
 Great Depression
 Follows
Says law
 Markets are self-regulating
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Keynes’ General Theory
 Markets
are not Self-regulating
 Gov’t Intervention is desirable
 Kalecki already noted
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Neoclassical Synthesis Keynesians
(NCSK)
Old/Neo Keynesians is also used
 Many recognized the unemployment is not temporary
 But hold to Classical axioms

Neutrality of money
 Gross Substitution assumption
 Erogodic Economic Environment

Cast Keynes in Classical Set-up – The IS/LM
 Ad hoc Constraints are used

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New Keynesian
Obey to Classical Axioms
 Introduce sophisticated (non-ad hoc) Constraints
 Coordination failure

Asymmetric information
 Transaction/menu costs etc…

If Prices are flexible and information free – coincides with
classical
 Both old and New take the classical system as the general
system and Keynes as special case

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New Classical Macroeconomics
 Add
a strong statement that summarizes how you
feel or think about this topic
 Summarize key points you want your audience to
remember
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Post Keynesian Macroeconomics
 Argue
that Keynes’ revolution is aborted
 Take Kaldor, Klaecki, Robinson and Keynes as
intellectual ancestors
 Concerned with RECOVERY and EXTENSION
of Keynes
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Fundamental basis of PK are:
 Role
of Social Conflict in distribution of income
 Centrality of aggregated demand in determining
output
 Inability of nominal wage adjustment to bring
about solution to the unemployment problem
 Endogenous nature of money
 Fundamental and mutable nature of expectations
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Structural Macroeconomists
 Basically
similar to PKs
 Emphasize class and distribution of
income/political economy
 Importance of intuitions and economics structure
in shaping agents behaviors
 The possibility of both quantity and price clearing
in markets
 They focus on developing countries
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HETRODOX MACROECONOMICS
 Refers
to
 (A) Post-Keynesian and,
 (B) Structuralist Macroeconomics
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(A) Post Keynesian Macroeconomics
 Argue
that Keynes’ revolution is aborted
 Take Kaldor, Klaecki, Robinson and Keynes as
intellectual ancestors
 Concerned with RECOVERY and EXTENSION
of Keynes
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Fundamental basis of PK are:
 Role
of Social Conflict in distribution of income
 Centrality of aggregated demand in determining
output
 Inability of nominal wage adjustment to bring
about solution to the unemployment problem
 Endogenous nature of money
 Fundamental and mutable nature of expectations
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(B) Structural Macroeconomists
 Basically
similar to PKs
 Emphasize class and distribution of
income/political economy
 Importance of intuitions and economics structure
in shaping agents behaviors
 The possibility of both quantity and price clearing
in markets
 They focus on developing countries
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Structural Macroeconomists (Cont’d)
 Building
on similar ideal to PKs
 ‘An economy has a structure if its institutions and
the behavior of its members make some patterns of
resource allocation and evolution substantially
more likely than others. Economic analysis is
structuralist when it take these factors as the
foundation stones for its theories’ Taylor 1983.
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Structuralist Cont’d




The Structuralist approach embraces three premises (FitzGerald &
Vos 1989):
(1) Economies are built up from agents such as firms, governments
& households whose who are not simple optimizers but their
behavior depends on the context of institutions, production
organization or social class in which they operate
(2) Markers may show rigidities, perverse response to price owing
to institutional behavior, market power, imperfect information and
class interest
(3) Institutional setting and relate market rigidities are basic
structural features but are not unchangeable over time
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The Structural Approach also emphasize:
 The
possibility of both quantity and price clearing
in markets
 Income distribution is central in macroeconomic
analysis
 They focus on developing countries
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In terms of details the Structural approach
focuses:
Prices are set at mark-up over prime cost (the degree of
monopoly – Kalecki)
 Saving propensities are assumed to differ by class
 Short-run models are set-up in variable s
normalized/divided by capital stock (to emphasize growth
and profit as opposed to levels of investment and payment
to factors
 Macro balance is decomposed sectorally (stability is
attained by minimizing sectoral excess demand to zero –
with Jacobian checked; sector could be ‘flexi-fixi price’)

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Details of Structuralist Cont’d


Imports are split in several ways (capital good a function of
investment; intermediate a function of output
Long-run issues are investigated by setting up transitions between
steady states in which all variables growth at constant rate



Ex: in one 1 sector model there are two conditions (a) the rate of money
expansion and output growth should be equal, and (b) wage inflation should
be equal price inflation/ real wage should be constant)
Finally, direction of causality varies model to model (that is all what
analysis is about)
Pls read Gebre-Hiwot and Deressa who wrote along this line
(Alemayehu 2004, IJEDS e-journal)
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Thank You
 Thank
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you (End of Session)
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