Working Paper: NBER ID: w1010
Authors: Herschel I. Grossman
Abstract: Non-market-clearing models continue to dominate analysis of macroeconomic fluctuations and discussions of macroeconomic policy. This situation is remarkable because non-market-clearing assumptions seem to be inconsistent with the essential presumption of neoclassical economic analysis that market outcomes exhaust opportunities for mutually advantageous exchange. Non-market-clearing models apparently have survived because they have evolved to incorporate both the natural-rate hypothesis and the rational-expectations hypothesis and because the alternative "equilibrium" approach has failed empirically.This paper expands on these ideas and briefly discusses some of the problems that we face in attempting to evaluate empirically the recent vintage of non-market-clearing models. The main difficulties seem to involve accounting for shifts in the natural levels of real aggregates and specifying the timing of the past anticipations that determine the effects of current monetary policy.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonmarketclearing models (D52) | empirical survival (C41) |
| monetary disturbances (E39) | temporary changes in real aggregates (E19) |
| monetary aggregates (E19) | real aggregates (R10) |
| failure of equilibrium models (D59) | relevance of nonmarketclearing assumptions (D59) |
| imperfectly anticipated monetary disturbances (E39) | affect real aggregates (E10) |