Saturday, September 24, 2016

Ramanan — James Tobin On Real Business Cycle Theory


Nice Tobin quote.

The Case for Concerted Action
James Tobin On Real Business Cycle Theory
V. Ramanan

Also

Marc Lavoie On The DSGE Emperor

5 comments:

Matt Franko said...

"Time series variables in economics and finance — for example, stock prices, gross domestic product, etc. — generally evolve stochastically"

https://en.m.wikipedia.org/wiki/Stochastic_drift

Darwin..... what are you guys complaining about?

How can you guys be upset about how the mainstream is analyzing the economy when they are approaching it entirely within the evolutionary paradigm?


Bob said...

Who are you and what have you done with Matt Franko?

Ryan Harris said...

Franko, Franko, Franko. Orthodox fantasy about interest rates controlling employment and economic growth aren't related to Darwin.

Typical exhortation of an orthodoxy adherent using their "laws":
For example, when short- and long-term interest rates go down, it becomes cheaper to borrow, so households are more willing to buy goods and services and firms are in a better position to purchase items to expand their businesses, such as property and equipment. Firms respond to these increases in total (household and business) spending by hiring more workers and boosting production."

The relations expressed in their pseudo-science formulas embody this verbage, verbatim. The model is just plain wrong, most of the time, in most economies during the majority of their economic development over time. Deterministic or Stochastic models would agree if they were right about the relationship. So the problem is being wrong, not the type of thinking or whether they use math, stats or language.

Matthew Franko said...

"the business cycle" = "evolution"

They are both modeled as stochastic processes...

Evolution based on random frequency and amplitude of random chance mutation, DSGE based on random frequency and amplitude of "the business cycle"...

The Fed is just explaining a process where they use the interest rate counter-cyclically vs. "the business cycle"... to intervene in what is viewed as a "naturally occurring" cyclical phenomenon with a random amplitude and frequency characteristic.....

So you cant complain about their methodology here and still remain a Darwin person without being a hypocrite....

Matthew Franko said...

Here is Lavoie via the Ramanan link:

"Macroeconomic theory needs to be revised both for the yang and the yin phases."

The way to do this is to start to view it Deterministic rather than Stochastic in general... not sure what Lavoie meant exactly here but I'd go further and say you have to stop thinking of it via "yin - yang" cyclical phenom...

MMT is a Deterministic theory not Stochastic with random occuring frequency and amplitude...

The whole "stochastic" thing is coming in here via all the Darwin based rationalization out there...