Essays in Honour of A.P. Thirlwall
Edited by Philip Arestis, John S.L. McCombie and Roger Vickerman
Chapter 9: On the Core of Macroeconomic Theory
9. On the core of macroeconomic theory1 John Cornwall INTRODUCTION The 1997 edition of the American Economic Review, Papers and Proceedings featured a symposium in which noted macro economists presented their views on what constitutes the ‘core’ elements of macroeconomics, encompassing both its short-run and long-run perspectives. This core was to be presented as a set of a few propositions summarizing that part of the framework that was ‘usable’ in the sense that it could explain the salient historical tendencies of macroeconomic development and offer useful policy principles. Given the background of the participants, it could be expected that strong differences in views would emerge, reflecting the major differences between the cores of the two reigning schools of macroeconomics, usually referred to as New Classical Macroeconomics and New Keynesian Macroeconomics. Thus, in one sense the symposium could be seen as a continuation of a running debate within macroeconomics, with the New Classical school allegedly offering rigour and elegance of exposition as the hallmark of its approach. Of special merit was its ability to present a unified body of neoclassical economic analysis, both in its micro foundations of macroeconomics and in a growth theory that extended its short-run macro analysis, something its proponents argued the New Keynesian school had failed to achieve. To this charge New Keynesians have responded that New Classical macroeconomics provides rigour and elegance but at too high a price. Based on the adoption of a competitive equilibrium core, it offers a micro foundation too far removed from...
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