Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 10: Economic dynamics
“Economic dynamics” is a large topic. In the space allotted here it is impossible to fully cover it. So, I shall begin by clarifying what will not be covered in this entry. While the focus will be more on macroeconomic than microeconomic dynamics, long-run growth will not be a main topic, although it will enter in as it is connected to economic fluctuations. Also, there will be less focus on models of dynamics that rely mainly upon exogenous shocks as their main driver, sometimes argued to represent classical approaches. It must be recognized that much of current modelling in macroeconomics follows such an approach, with Frisch’s (1933) “rocking horse model” the archetype for much of what followed in this vein (Lucas and Sargent 1981; Kydland and Prescott 1982; Long and Plosser 1983). Business cycles arise from shocks to productivity or to the desire to work on the part of labour. Little effort is made to model these shocks, and the result is that such models have performed poorly in explaining such events as the crisis of 2008 and the events following it. However, it must be recognized that the wisecrack of William “Buz” Brock that the only truly exogenous force in the economy is the sun (personal communication 1985) contains considerable truth.
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