tag:blogger.com,1999:blog-17232051.post7861881788678285529..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Neither Real, nor Business, nor CyclesNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger42125tag:blogger.com,1999:blog-17232051.post-44113820722422281862012-10-11T01:45:56.218-04:002012-10-11T01:45:56.218-04:00Would you place Ricardian Equivalence in the same ...Would you place Ricardian Equivalence in the same class as RBC? It seems to me to be in the same class of ideologically driven modelling, i.e. completely and utterly ignoring the facts. You put garbage in, you get garbage out. I probably don't need to mention that Ricardo himself disowned this idea quite vigorously... because that would be beside the point, we have enough modern day supporters of this ideaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30176826964474038652012-07-20T07:07:29.464-04:002012-07-20T07:07:29.464-04:00From a heraldry amateur here; the double headed ea...From a heraldry amateur here; the double headed eagle on the picture is probably from one of the Habsburg emperors post 16th century. Hungary(silver double cross on red base on three green hills), Croatia(checkered white and red) and Dalmatia(three lion heads on blue base) were never part of HRE. <br />HRE imperial banner was black double headed eagle on yellow and coat of arms was this: http://en.wikipedia.org/wiki/File:Quaterionenadler_David_de_Negker.svg<br /><br />Nonetheless it's a good analogy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-69965783162620249942012-05-08T03:41:40.314-04:002012-05-08T03:41:40.314-04:00Nice piece. I am not a fan of RBC models but you h...Nice piece. I am not a fan of RBC models but you have to be more precise. Three points. <br /><br />@Cycles: Since the papers of Frisch, Slutzky and Samuelson, "shocks" are modelled as kind of "fundamental" drivers of an economy which can be described using the comparison of a rocking chair. The economy tends to market clearing and equilibrium and then some forces drive you away from that point and the chair oscillates. Impulse and propagation. Therefore cycles -- boom and busts -- are not only driven by the shocks but by the structure of the economy. In the case of Samuelsons famous multiplier-accelator model it was the interaction between households and businesses which defines the propagation mechanism. So, even in simple RBC models we can have (quite regular) cycles.<br /><br />@ Businesses and Real: I completely agree. New Keynesian DSGE models added monopolistic competition and more detailed firm behaviour and a lot of channels to make the impact of demand shocks more prominent. However what is more a kind of problem in this models is the Frisch-Slutzky-Samuelson paradigm of an inherently stable market clearing process.<br /><br />@ Forecasting: This is a misunderstunding on the role of models in thinking about the world works. We build models to reduce complexity and focus on the central channels. We do not build models to forecast (you never try simple forecasting techniques with sophisticated models....)Ulrich Fritschehttps://www.blogger.com/profile/06598548333035316965noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34859039973184578922012-05-07T19:28:15.434-04:002012-05-07T19:28:15.434-04:00You know who likes RBC? Tyler Cowen.
I am trying...You know who likes RBC? Tyler Cowen. <br /><br />I am trying to get people to realize the guy is a hack. Perhaps, perhaps this will be the final piece of evidence necessary. <br /><br />But then he's got all the Koch money coming in. What does he care?Anonymoushttps://www.blogger.com/profile/05819776376553445235noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81544629218444096412012-05-01T00:16:27.926-04:002012-05-01T00:16:27.926-04:00Anonymous:
I think what we have is a high expone...Anonymous:<br /><br /> I think what we have is a high exponential growth in money, and a low or near-zero-exponent exponential growth in actual value.<br /><br />Does that answer your question?<br /><br />Noah: <br /><br />I find it surprising if not a single economist has published a paper that says that recession is a reset for exponential debt, and a socialization of losses while private profits have already been taken, of course.<br /><br />Mind you, I'm not an Austrian, nor an Austerian. I'm more of a Paul Krugman fan, really.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61148058659439474812012-04-29T03:54:36.399-04:002012-04-29T03:54:36.399-04:00Instead of reading papers that deal with RBC model...Instead of reading papers that deal with RBC models, I think it is far more advantageous to work out the 2nd edition of a book like Macroeconomics in Emerging Markets, by Peter Montiel (CUP, 2011). <br /><br />http://books.google.es/books?id=8KlyxPFMhJ0C&printsec=frontcover&hl=es#v=onepage&q&f=false<br /><br />I am neither the author nor the publisher nor someone marketing the textbook. I am just a person that read the book and found it to be illuminating.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-27422865780042154492012-04-28T21:10:07.500-04:002012-04-28T21:10:07.500-04:00I should hav added Ellen R. McGrattan, forthcoming...I should hav added Ellen R. McGrattan, forthcoming. "Capital taxation during the U.S. Great Depression," which found increased capital taxation during the U.S. Great Depression were small in the case of taxation of business profits, but finds large effects in the case of taxation of dividend income. <br /><br />• Tax rates on dividends rose dramatically during the 1930s and imply significant declines in investment and equity values and nontrivial declines in gross domestic product and hours of work. <br /><br />• The results are amplified if businesses make intangible investments which can be expensed from taxable capital income.Jim Rosenoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-74067156288200037212012-04-28T19:49:46.425-04:002012-04-28T19:49:46.425-04:00thanks, but see Fiscal Sentiment and the Weak Reco...thanks, but see Fiscal Sentiment and the Weak Recovery from the Great Recession: A Quantitative Exploration by Finn E. Kydland and Carlos E. J. M. Zarazaga at<br />http://casee.asu.edu/upload/FiscalSentimentKydlandZarazagaASU.pdf<br /><br />The U.S. economy isn’t recovering from the deep Great Recession of 2008-2009 with the anticipated strength. A widespread conjecture is that this weakness can be traced to perceptions of an imminent switch to a higher taxes regime.<br /><br />The main finding by Kydland and Zarazaga is that the fiscal sentiment hypothesis can account for a significant fraction of the decline in investment and labor input in the aftermath of the Great Recession, relative to their pre-recession trends. <br /><br />These results require a qualification: The perceived higher taxes must fall almost exclusively on capital income.<br /><br />This is not an unreasonable condition. It suggests that economic agents suspect that at times of stress, the tax structure that will be implemented to address large fiscal imbalances will be far from optimal.<br /><br />As agents realize that their capital income will be taxed more heavily in the future, they reduce their holdings of the capital stock by not completely replenishing the part of it that depreciates every period and by changing the composition of output in favour of consumption.<br /><br />The fiscal sentiment hypothesis can account for between three-fifths and the entire decline in private gross domestic investment, and one third to one half of the decline of labor input observed since the trough of the great recession<br /><br />In old Keynesian terms, a wave of pessimism is behind the weakness in investment and the weak demand for labour. <br /><br />Real business cycle provides grunt to the animal spirits view of investment. Real business cycle theory is unpacking the exogenous shocks central to old Keynesian macroeconomics.Jim Rosenoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-90187785047262815662012-04-28T11:52:43.138-04:002012-04-28T11:52:43.138-04:00Real business cycles are recurrent fluctuations in...<i>Real business cycles are recurrent fluctuations in incomes, products and factor inputs, especially labor, that are due to non-monetary sources that sources include changes in technology, tax rates and government spending, tastes, government regulation, terms of trade, and energy prices.</i><br /><br />Recurrent business cycles due to changes in tax rates, regulation, and government spending? ;)<br /><br /><i>In today’s macroeconomic models, supply shocks typically play an important role alongside demand shocks.</i><br /><br />Like, which one, for instance?Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20814752676239529122012-04-28T08:27:13.238-04:002012-04-28T08:27:13.238-04:00http://www.minneapolisfed.org/publications_papers/...http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=195 for Prescott’s response to summers. was that also assigned?<br /><br />Real business cycles are recurrent fluctuations in incomes, products and factor inputs, especially labor, that are due to non-monetary sources that sources include changes in technology, tax rates and government spending, tastes, government regulation, terms of trade, and energy prices.<br /><br />Kydland and Prescott’s 1982 showed that technology shocks, i.e., short-run variations around the positive growth trend for technology that makes economies grow in the long run, could be an important cause of output fluctuations. <br /><br />In today’s macroeconomic models, supply shocks typically play an important role alongside demand shocks.<br /><br />Extensions of Kydland and Prescott’s methodology included analyses relying on monetary shocks or international shocks to the terms of trade, and different propagation mechanisms, such as those implied by imperfections in credit, labor and goods marketsJim Rosenoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-43500440014999053842012-04-27T09:52:47.534-04:002012-04-27T09:52:47.534-04:00And yet we've had fairly stable long run expon...And yet we've had fairly stable long run exponential growth even taking into account a couple of big "resets". Maybe you could define "unfeasible" for us?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65912546605065641432012-04-27T01:45:51.357-04:002012-04-27T01:45:51.357-04:00Not that I know of!Not that I know of!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-21371127186682526072012-04-27T00:47:00.466-04:002012-04-27T00:47:00.466-04:00Somehow in my ignorance and naivete I had imagined...Somehow in my ignorance and naivete I had imagined that RBC was model of how boom and (especially) bust was an inevitable consequence of the exponential model X= X0*(1+r)^N of the cost of debt.<br /><br />Question: Is there a formal theory of economic cycles that recognize that busts simply are a mechanism for (a) hitting the reset button on clearly unfeasible exponential growth, and (b) at the same time making sure that the general public pays the price of the reset through unemployment and low deposit interest rates.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34550614435274834332012-04-26T11:35:12.243-04:002012-04-26T11:35:12.243-04:00Two additional comments. First, I think that Paul...Two additional comments. First, I think that Paul Romer's work on endogenous growth is also a significant dagger into the heart of RBC, which relies on what I refer to as the technology tooth fairy, since the modeling of technological shocks bears a striking resemblance to children's stories. Secondly, it is worth noting, as I have done before, that in the investment management industry, where I have spent the last 35 years since my graduate school education, and where models to survive have to have some level of accuracy in their predictions, nobody, and I mean nobody, uses RBC models. For those of you who believe the efficacy of markets, you might consider that the actual marketplace of money, versus the marketplace of ideas, has spoken on this subject.RPLnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20750121277145794822012-04-26T11:29:42.870-04:002012-04-26T11:29:42.870-04:00The big question is why the microeconomists allowe...The big question is why the microeconomists allowed this.Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40116386527975794312012-04-26T11:28:29.293-04:002012-04-26T11:28:29.293-04:00Because what they are doing is taking residuals, a...Because what they are doing is taking residuals, and pretending that they are actually the effects of a factor, rather than residuals from a model.Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34408464731218423622012-04-26T06:42:28.497-04:002012-04-26T06:42:28.497-04:00Words have meanings beyond their formal etymologie...Words have meanings beyond their formal etymologies. The implication is obvious and exists whether the namers intended it or not.<br /><br />Obviously those things didn't acquire their names as part of some cynical PR scheme, but the pattern (maybe) exists and is funny nontheless.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15899503524294988942012-04-26T04:04:55.321-04:002012-04-26T04:04:55.321-04:00I'm sorry, "real" isn't referrin...I'm sorry, "real" isn't referring to its own correctness. It is a contrast to market failure arguments. But hey, who needs intellectual honesty when you have a political agenda to push?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-64434485448690564802012-04-26T02:48:00.847-04:002012-04-26T02:48:00.847-04:00I'm not sure why people say RBC is microfounde...I'm not sure why people say RBC is microfounded since technology is so ad hoc...Anonymoushttps://www.blogger.com/profile/14235846531323511190noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49389426975911511142012-04-25T16:56:45.788-04:002012-04-25T16:56:45.788-04:00I think that "endowment effects" also pl...I think that "endowment effects" also play a role here. It must be immensely difficult to abandon a theory that you've worked on so hard. Also, the way you see the economy really depends on the lenses you look through. Economic data contains so much noise that you can rationalize it in an infinite number of ways, especially if the degrees of freedom are not too few (which they are not in an RBC kind of model).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-90217016183009799962012-04-25T15:56:03.241-04:002012-04-25T15:56:03.241-04:00A rule of thumb of mine is to be deeply suspicious...A rule of thumb of mine is to be deeply suspicious of any theory that attempts to declare itself right in its title. This applies to 'Real' Business Cycles, 'Realist' IR theory, or 'Objective'-ism, all of which use daft reasoning to arrive at wrong conclusions which are nevertheless ideologically convenient.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55422292551948298642012-04-25T14:09:25.061-04:002012-04-25T14:09:25.061-04:00A very good point.
Have you read this post of min...A very good point.<br /><br />Have you read this post of mine?<br />http://noahpinionblog.blogspot.com/2012/02/are-macroeconomic-methods-politically.htmlNoah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61722647322956319862012-04-25T13:42:02.442-04:002012-04-25T13:42:02.442-04:00Isn't the reason that RBC remains popular is t...Isn't the reason that RBC remains popular is that:<br />1/ New Keynesian models/New Classical models are RBC models with added frictions (sticky prices, search frictions, etc).<br />2/ When developing a new theory, it might be best to see how the particular friction you are interested in interacts with a model that is otherwise 'vanilla'? If you add a new friction (say) to a model with a whole load of other frictions in, it's not clear whether the change in the results you get is because of the new friction by itself, or because of the interaction of the new friction with the other frictions (eg. are uncertainty shocks in themselves important, or is it only because you add them to a model which assumes habit formation in consumption?)<br />And of course:<br />3/ RBC is the simplist microfounded model. Therefore it remains a useful teaching tool for first year grad students (or older undergrads).<br /><br />Just thinking aloud..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-88841205052604699422012-04-25T13:22:02.119-04:002012-04-25T13:22:02.119-04:00Why should we think they are exactly? What in the ...Why should we think they are exactly? What in the data tells you that an AR(1) process isn't sufficient? More than that, what in the data lets you know that they are linked?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15959069807933969652012-04-25T09:05:55.108-04:002012-04-25T09:05:55.108-04:00It's not a 'cycle' because the booms a...It's not a 'cycle' because the booms and busts aren't actually linked. It's simply a stable economy occasionally buffeted by shocks.Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.com