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ISET Economist Blog

A blog about economics in the South Caucasus.

World of EconoBlogs

It’s Friday – so it’s time for a new portion of interesting links from around the world of EconoBlogs.

1.  Our already regular contributor Michael Fuenfzig informs us that TEDx talks at Tbilisi State University are now available on Youtube. Interesting and important news for anyone who knows what TED is. And if you don’t – a good opportunity to start.

2.  Brad DeLong has an interesting post on how far the US Treasury borrowing could go, before it actually becomes harmful for the economy. The answer, conditional on the present economic conditions, is quite interesting.

3.  The same blog also discusses the limitations of monetary policy in a liquidity trap – pretty useful stuff, I’d say.

4.  Risking incurring Zak’s wrath, here are Paul Krugman’s thoughts on microfoundations. Highly macro-biased of course, and hence controversial (as is usual with Krugman), however there is one part I agree with wholeheartedly: “what we call “microfoundations” are not like physical laws. Heck, they’re not even true”.

5.  Some more thoughts on microfoundations – from Noah Smith this time. More well-thought than the short post from Krugman – and look for more links inside.

6.  And some more on the same subject from Stephen Williamson.

7.  Again microfoundations - a view from the other side, as it were – David Glasner wishes to distinguish between good and bad microfoundations.

As an aside – I apologize for so many links dwelling on the microfoundations debate, but I really believe this to be one of the most important issues in macroeconomics (macromodeling for sure) and I included such (probably) biased and controversial views in this week’s post on purpose: the more we discuss things like this, the better.

8.  Some macro yet again – Worthwhile Canadian Initiative has a little nice explanation of the inflation targeting as a version of American put option. The comments are as interesting as the post itself (I myself more agree with a “Kafkian” commenter K there).

9.  Remember a discussion on digital vs “analog” content last week? Here’s a sad story, reported by the Washington Post. End of an era…

10.  And finally, some humour (and yes, I prefer British spelling). First, British comedian David Mitchell explains what the recession is really about (and I’d recommend watching episodes of “Mock the Week” to anyone). And second, brilliant Yoram Bauman extends the famous (btw, if “humour” should be “humor”, why  is “famous” not “famos”?) “sh*t happens” paradigm to economics.

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Guest - Zak on Monday, 19 March 2012 03:52

Oh, Giorgi, we have a major misunderstanding, I see :)

Let me concentrate on posts 4 and 5 only.

My view is in fact pretty close to those of these two gentlemen. I thought it was you who was fiercely defending DSGE.

One thing we have to make clear is that these authors (like most economists) when talking about micro-founded models consider (almost exclusively) only DSGE and do not pay attention to other literature. Post 5 on your list refers to the point 4 in post 4 on your list and states: "… real argument against microfoundations as they are currently used in macro …" - italics by the author! That is a shame! There are interesting non-optimizing (bounded rationality, non-perfect foresight etc.) micro-founded macro models that are insightful in many respects. These base agent behavior on empirical observations rather than stylized has-to-be-type behavior. That is the direction I was lobbying for.

I have never stated that non-micro-founded models were not useful. In fact I would rather use a non-micro founded model than a wrongly-micro-founded model (such as DSGE, and again Kurgman agrees that DSGEs are indeed wrongly-micro-founded in his current and previous posts). My post, that I have put here earlier, tries to make the case for the multiplicity of approaches!

That pretty much covers your and Krugman's references to physics too (as Krugman has in mind physics-type practices underling DSGE, e.g. laws of physics). Previously I did not think it was important, but as we are going into details here let me also mention that, alongside DSGE, I do not like large part of econophysics literature that tries to use physical models based on energy conservation principles and analyze closed, insulated economic systems. But there are important advances in physics that can be useful to social scientists.

Oh, Giorgi, we have a major misunderstanding, I see :) Let me concentrate on posts 4 and 5 only. My view is in fact pretty close to those of these two gentlemen. I thought it was you who was fiercely defending DSGE. One thing we have to make clear is that these authors (like most economists) when talking about micro-founded models consider (almost exclusively) only DSGE and do not pay attention to other literature. Post 5 on your list refers to the point 4 in post 4 on your list and states: "… real argument against microfoundations as they are currently used in macro …" - italics by the author! That is a shame! There are interesting non-optimizing (bounded rationality, non-perfect foresight etc.) micro-founded macro models that are insightful in many respects. These base agent behavior on empirical observations rather than stylized has-to-be-type behavior. That is the direction I was lobbying for. I have never stated that non-micro-founded models were not useful. In fact I would rather use a non-micro founded model than a wrongly-micro-founded model (such as DSGE, and again Kurgman agrees that DSGEs are indeed wrongly-micro-founded in his current and previous posts). My post, that I have put here earlier, tries to make the case for the multiplicity of approaches! That pretty much covers your and Krugman's references to physics too (as Krugman has in mind physics-type practices underling DSGE, e.g. laws of physics). Previously I did not think it was important, but as we are going into details here let me also mention that, alongside DSGE, I do not like large part of econophysics literature that tries to use physical models based on energy conservation principles and analyze closed, insulated economic systems. But there are important advances in physics that can be useful to social scientists.
Guest - Zak on Monday, 19 March 2012 18:45

Oh, Giorgi, we have a major misunderstanding, I see :) Let me concentrate on posts 4 and 5 only.

My view is in fact pretty close to those of these two gentlemen. I thought it was you who was fiercely defending DSGE.

One thing we have to make clear is that these authors (like most economists) when talking about micro-founded models consider (almost exclusively) only DSGE and do not pay attention to other literature. Post 5 on your list refers to the point 4 in post 4 on your list and states: "… real argument against microfoundations as they are currently used in macro …" - italics by the author! That is a shame! There are interesting non-optimizing (bounded rationality, non-perfect foresight etc.) micro-founded macro models that are insightful in many respects. These base agent behavior on empirical observations rather than stylized has-to-be-type behavior. That is the direction I was lobbying for.

I have never stated that non-micro-founded models were not useful. In fact I would rather use a non-micro founded model than a wrongly-micro-founded model (such as DSGE, and again Kurgman agrees that DSGEs are indeed wrongly-micro-founded in his current and previous posts). My post, that I have put here earlier, tries to make the case for the multiplicity of approaches!

That pretty much covers your and Krugman's references to physics too (as Krugman has in mind physics-type practices underling DSGE, e.g. laws of physics). Previously I did not think it was important, but as we are going into details here let me also mention that, alongside DSGE, I do not like large part of econophysics literature that tries to use physical models based on energy conservation principles and analyze closed, insulated economic systems. But there are important advances in physics that can be useful to social scientists.

Oh, Giorgi, we have a major misunderstanding, I see :) Let me concentrate on posts 4 and 5 only. My view is in fact pretty close to those of these two gentlemen. I thought it was you who was fiercely defending DSGE. One thing we have to make clear is that these authors (like most economists) when talking about micro-founded models consider (almost exclusively) only DSGE and do not pay attention to other literature. Post 5 on your list refers to the point 4 in post 4 on your list and states: "… real argument against microfoundations as they are currently used in macro …" - italics by the author! That is a shame! There are interesting non-optimizing (bounded rationality, non-perfect foresight etc.) micro-founded macro models that are insightful in many respects. These base agent behavior on empirical observations rather than stylized has-to-be-type behavior. That is the direction I was lobbying for. I have never stated that non-micro-founded models were not useful. In fact I would rather use a non-micro founded model than a wrongly-micro-founded model (such as DSGE, and again Kurgman agrees that DSGEs are indeed wrongly-micro-founded in his current and previous posts). My post, that I have put here earlier, tries to make the case for the multiplicity of approaches! That pretty much covers your and Krugman's references to physics too (as Krugman has in mind physics-type practices underling DSGE, e.g. laws of physics). Previously I did not think it was important, but as we are going into details here let me also mention that, alongside DSGE, I do not like large part of econophysics literature that tries to use physical models based on energy conservation principles and analyze closed, insulated economic systems. But there are important advances in physics that can be useful to social scientists.
Guest - Giorgi on Wednesday, 21 March 2012 13:54

I just fail to see, how "right" microfoundations would work? They inevitably would involve some level of aggregation and optimizing behaviour, and however attractive the latter is, it certainly does not describe the vast majority of human population.

As for econophysics - laws of conservation are probably the most important and fundamental laws of physics, so if we want to use physics in economics, there must be some analogs, I think

I just fail to see, how "right" microfoundations would work? They inevitably would involve some level of aggregation and optimizing behaviour, and however attractive the latter is, it certainly does not describe the vast majority of human population. As for econophysics - laws of conservation are probably the most important and fundamental laws of physics, so if we want to use physics in economics, there must be some analogs, I think
Guest - Zak on Tuesday, 20 March 2012 22:59

I just got down to your 8th entry :) Bauman demonstrates nicely the difference between micro and macro economists. He hints to the same direction when he interprets Mankiw's 10 principles of economics.

I just got down to your 8th entry :) Bauman demonstrates nicely the difference between micro and macro economists. He hints to the same direction when he interprets Mankiw's 10 principles of economics.
Guest - Giorgi on Wednesday, 21 March 2012 13:50

I wouldn't agree completely with Bauman's interpretation of macro though :))) Funny as it definitely is :)

I wouldn't agree completely with Bauman's interpretation of macro though :))) Funny as it definitely is :)
Guest - Eric on Wednesday, 21 March 2012 04:24

Macroeconomics is in real trouble, but we are still teaching it from the same old textbooks because there is no alternative. Maybe we should stop teaching it? Close shop for renovation?

Macroeconomics is in real trouble, but we are still teaching it from the same old textbooks because there is no alternative. Maybe we should stop teaching it? Close shop for renovation?
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