The Chimera of Macroeconomics

  Opening Quizzes . How long is the price, the wage or the interest rate sticky?   <Group 1> The price of a good or a service ( answer ) Grocery ( a week ), wine ( a month ), engine oil ( a quarter ), haircut ( a year ), dental treatment ( three years ), DMV service ( 10 years ) <Group 2> The wage rate Daily bread-earner ( a day ), weekly contractor ( a week ), the factory worker ( a fortnight ), blue-berry picker ( a month ), cabbage-field worker ( a quarter ), cotton-field worker (two quarters) office worker ( a year ), housemaid ( five years ), slave ( lifetime ) <Group 3> The rental rate of a site Hotel room ( a day ), motel room ( a week ), summer camp ( a quarter ), cottage around a working-holiday farm ( a year ), urban apartment ( two years ), office building ( five years ), warehouse (10 years), charted land (99 years) <Group 4> The rental rate of capital stock Coin-car cleaner ( a minute ), washing machine ( 10 minut...

  To be fair, macroeconomics , supposedly “empirical,” was conceived by a certain thought leader who first differentiated the run between “short” and “long.” Afterwards come forward numerous models of “ equilibrium ”  (T 0 )  have.              Alas, 千慮一失 ( qiānlǜyīshī ) ! Master and disciples do take the metaphorical run (L for length in the space dimension) for the real run (T for length in the time dimension). Providentially in Cambridge , the time flies literally like an arrow over the space (L -1 ).              Down (0) with the time dimension (T)!              Ever since in Cambridge, any race when longer than the 50 m dash can be named as “the long run” upon the choice of convenience; 100 m is longer, 400 m is still longer and the like indefinitely. Such naming surely is true a...

  Some macroeconomists differentiate themselves with the name “ new Keynesian ” from other macroeconomists. Most typically they imagine the so-called “sticky price model of AS-AD” for the medium run, which must fall between the short and long runs. Their Sophistic Way. The model is often described with the following equation: P= s∙ EP + (1– s)∙[P+ a ∙ (Y– Y*)] , where EP is the expected price level (“sticky prices”), “ s ” the fraction of firms stuck to EP , Y* the natural level of output, and “ a ” a positive coefficient. Procrustean Bed . See We Told You So: P= [a ∙ (1– s)/ s]Y + [EP– a ∙ (1– s) ∙ Y*/s] . The AS curve is upward sloping!              Wonderful, but for reminding us of the super “classical” Greek mythology: Tailor, and that Swift, the customer’s feet to the bed! A Greek Equation . To emulate Eugene Fama , a Chicago boy, “No similarity is completely similar.” The SPM (for sticky price model) and the PB...