Working Paper: NBER ID: w13655
Authors: V. V. Chari; Patrick J. Kehoe
Abstract: Robert Solow has criticized our 2006 Journal of Economic Perspectives essay describing "Modern Macroeconomics in Practice." Solow eloquently voices the commonly heard complaint that too much macroeconomic work today starts with a model with a single type of agent. We argue that modern macroeconomics may not end too far from where Solow prefers. He is also critical of how modern macroeconomists use data to construct models. Specifically, he seems to think that calibration is the only way that our models encounter data. To the contrary, we argue that modern macroeconomics uses a wide variety of empirical methods and that this big-tent approach has served macroeconomics well. Solow also questions our claim that modern macroeconomics is firmly grounded in economic theory. We disagree and explain why.
Keywords: No keywords provided
JEL Codes: E12; E13; E2; E20; E21; E22; E32; E4; E5; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| modern macroeconomics incorporates heterogeneity and interactions among different types of agents (E13) | analysis of business cycle fluctuations (E32) |
| microeconomic data provides discipline (D00) | robustness of macroeconomic models (E17) |
| variety of econometric methods used (C51) | validity of macroeconomic conclusions (F40) |
| evolution in macroeconomic research (B22) | incorporation of various agents in models (C59) |