Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
The aim of this entry is to introduce the reader to the main episodes that have marked the course of macroeconomics. It starts with an evocation of the emergence of modern macroeconomics as a new sub-discipline arising in the aftermath of John Maynard Keynes’s General Theory. The bulk of the chapter consists of a presentation of the successive episodes that marked the history of macroeconomics. Keynesian macroeconomics was the first of these, its heyday spanning the 1950s and 1960s. At the end of the 1960s, it came under attack, first from Milton Friedman and later, in a more radical way, from Robert Lucas and his associates such as Robert Barro, Thomas Sargent and Neil Wallace. These economists, new classical macroeconomists as they were called at the time, were able to dethrone Keynesian macroeconomics in a move that had all the trappings of a scientific revolution. In turn, Lucas’s work triggered the rise of a series of new Keynesian models aimed at rebutting Lucas’s claim, while adopting his neoclassical language. The next stage of the history of macroeconomics occurred when the baton was passed from new classical to real-business-cycle (RBC) theorists, in a move initiated by Finn Kydland and Edward Prescott. These economists transformed Lucas’s qualitative model into a quantitative research programme into which they enrolled a large chunk of the macroeconomic profession. The latest stage in the history of macroeconomics is the internal evolution of RBC models towards a second generation of new Keynesian modelling, whereby central elements of Keynesian macroeconomics, in particular monopolistic competition and sluggishness, are reintroduced into the real business cycle framework. Little space will be devoted to the content of the General Theory since this is fully covered in another entry. The same is true for macroeconomics as it existed before Keynes under the name of monetary theory (on this subject, we refer the reader to Laidler 1999 and Dimand 2008). In addition, the entry is limited to mainstream macroeconomics (useful references for non-mainstream research lines are Snowdon and Vane 2005, King 2002, and Fine and Milonakis 2009).
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