Monday, December 2, 2013

Why macroeconomics is still a science

From the United Kingdom:
Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.
New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey. Tyler Cowen
There is more here, and I will reiterate that this trend was not very well predicted by any macroeconomic school of thought, including liquidity trap theories, recent emphases on long-run secular stagnation, or for that matter the contrasting “of course there is mean reversion” approaches, which don’t tell us much about timing and which would appear to contradict the slow recoveries seen elsewhere.  Spain, by the way, does not have an equivalent degree of cheer

Macroeconomics tells us that England likely does not suffer the stagnations. Because we do not know the timing, Macroeconomics tells us the moves are not DSGE compatible (Uneuler) . Macroeconomics also tells us the current liquidity trap theories are incomplete, as Williamson points out. Macro economics tells us the difference between Spain and England is Spain might suffer an over aggregated currency zone.

And the final reason we know Macroeconomics is still a science is this:
The Great Stagnation, a widely read book that describes a (possibly wrong) macroeconomic theory of the stagnations.

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