Macroeconomic Methodology

Macroeconomic Methodology

A Post-Keynesian Perspective

Jesper Jespersen

Jesper Jespersen presents a treatise on the importance of the choice of methodology within macroeconomics. Given that no scientifically based macroeconomic policy recommendation should be established without an evaluation of the methods employed, this book gives a clear exposition of how proper macroeconomic analysis should be undertaken. Furthermore, it is convincingly argued that one of the lasting contributions of John Maynard Keynes was his emphasis on methodology; that macroeconomic consequences of uncertainty could not be analysed within the established general equilibrium framework. It is due to post-Keynesian economics supported by critical realism that the understanding of Keynes’s methodology has been resurrected, which has eventually resulted in renewed debate on realistic macroeconomic policies to restore full employment without inflation.

Preface

Jesper Jespersen

Subjects: economics and finance, economic psychology, history of economic thought, methodology of economics, post-keynesian economics

Extract

This book has been a long time in the making. My interest in methodological questions arose already in the early stages of my studies. I was captivated by the question: why was there such a wide gap between the macroeconomic reality that unfolded before our eyes and the theories and models that were presented in our lecture halls? There must have been something wrong with the method that macroeconomists were using. To the surprise of many established economists, unemployment, contrary to the many fine theories, began to rise throughout the 1970s – all the while inflation and the current account deficit also grew. The current macroeconomic theories simply could not explain reality. I wrote my Master’s thesis on macroeconomic method in 1974 under the skilled supervision of Professor Poul Nørgaard Rasmussen and Professor Niels Thygesen at Copenhagen University, who both directed my focus on this disturbing macroeconomic problem: that mainstream economic theory could not explain the macroeconomic development of stagnation and financial instability. There seemed to be an increasingly yawning gap between theory and reality. Concurrent with my studies, I was employed as an intern for Statistics Denmark, where I took part in creating and running simulations with the macro-econometric model ADAM, under the guidance of Professor Ellen Andersen. I later continued this empirically guided research as an assistant in the Economic Advisory Council with inspiration from Professor Anders Ølgaard and head of office Arne Mikkelsen. Since the beginning of my university career, it has been the Keynesian macroeconomic tradition...