Microfoundations Reconsidered

Microfoundations Reconsidered

The Relationship of Micro and Macroeconomics in Historical Perspective

Pedro Garcia Duarte and Gilberto Tadeu Lima

The highly regarded contributors to the book argue that the standard narrative of microfoundations is likely to be unreliable. They therefore re-examine the history of the relationship of microeconomics and macroeconomics, starting from their emergence as self-consciously distinct fields within economics in the early 1930s. They seek to go beyond the conventional history that is often told and written by practicing economists. From different perspectives they challenge the association of microfoundations with Robert Lucas and rational expectations and offer both a more complete and a deeper reading of the relationship between micro and macroeconomics.

Chapter 6: Not Going Away? Microfoundations in the Making of a New Consensus in Macroeconomics

Pedro Garcia Duarte

Subjects: economics and finance, history of economic thought, radical and feminist economics


Pedro Garcia Duarte1 Macroeconomics is now, as it has always been, the subject of intense controversy. (Robert Solow 1979: 340) When the outside world tells us that no two economists ever agree on anything, it is talking about macroeconomics. (Stanley Fischer 1983: 275) While macroeconomics is often thought as a deeply divided field, with less of a shared core and correspondingly less cumulative progress than in other areas of economics, in fact, there are fewer fundamental disagreements among macroeconomists now than in the past decades. This is due to important progress in resolving seemingly intractable debates. (Michael Woodford 2009: 267) 1. INTRODUCTION Macroeconomics here, according to the economists discussed in this chapter, refers to “the branch of economics concerned with fluctuations in the overall level of business activity, with the determinants of inflation, interest rates, and exchange rates, and with the effects of government policies … that are considered mainly with regard to their effects upon the economy as a whole” (Woodford 2000: 1). Therefore, the focus is on business cycle and the theory of economic stabilization (with greater emphasis on monetary economics) rather than on growth. In the last decade a growing number of macroeconomists have advertised their field as a steadily progressing enterprise because they now work on a common theoretical framework. Clearly, these economists have an understanding of the current consensus that is indissociable from their view that in the past macroeconomics could not progress much because competing schools fought never-ending theoretical battles. My goal in this chapter...

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