By Jackson M.O.
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Their first chapter, ‘‘Social Interactions and Macroeconomics,’’ surveys the ‘‘good faith attempts to introduce substantive sociological factors into economic modeling’’ as they relate to aggregate or macroeconomic phenomena. They develop the general structure of social interactions models and the concept of social multipliers, which increases the level of complementarities in the system. , 2003) as well as here. 18 David Colander is the model uncertainty work, the expected payoff from this research warrants its undertaking.
It is finding this instability of the full employment state that motivates and justifies Keynes’s claim to a more general theory. The adaptive dynamics of his theory are more general than his predecessors. And it 7 Equilibrium nota bene in a Marshallian, obviously not Walrasian, sense. In the Treatise, Keynes had a nice analysis of liquidity preference showing how the decline in expected return to capital causes ripples of substitutions all along the term structure. At the shortest end, the banks do not find returns attractive enough to relend all the funds that flow back in repayment of loans as production declines.
The type of policy discussion that is taking place can be seen in a recent paper by Schmitt-Grohe´ and Uribe (2005). In it they argue that the policy advice of ‘‘smooth distortionary income tax rates and highly volatile and unpredictable inflation rates’’ that follows from the model with no nominal rigidities is significantly modified if one has nominal rigidities. Introduction 7 Modern empirical work in the Walrasian macrotradition has given up trying to directly forecast with the theoretical models, and has concentrated more on showing general consistency of the model with filtered empirical evidence by calibrating the models with out-of-sample data.