Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model
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Book Reviews Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model. Edited by David Colander. Cambridge University Press, New York, 2006. 438pp., $90.00 (hardback), $39.99 (paperback). ISBN: 0-521-86548-4 (hardback), 0-521-68420-X (paperback). Georgios Chortareas University of Athens, Greece
This impressive book contains contributions from some of the most inquisitive minds in economics. The essays are organized around five major themes. The first theme concerns the current state of macroeconomic theory and modeling. This part of the book constitutes a great read for those unfamiliar with the technical details of modern macroeconomics. Axel Leijonhufvud provides an episodic account of the history of macroeconomics over the last century, emphasizing historical links to the Post Walrasian view. David Colander highlights the continuity between classical and Post Walrasian macroeconomics, and the importance of agent optimization in limited-information environments. According to Colander, the lack of sophisticated tools has kept economists from dealing with the questions raised by Post Walrasian economics and allowed the Walrasian approach, which focuses on manageable issues, to dominate macroeconomics. Perry Mehrling explores how time and uncertainty are treated in classical, Dynamic Stochastic General Equilibrium (DSGE), and Post Walrasian models. Peter Matthews discusses Post Walrasian man and what might be needed to replace the rational agents of the current paradigm. He argues that building a new model of man will require insights from experimental, behavioral, and evolutionary approaches to microeconomic behavior. Section Two highlights some limitations of the DSGE framework, although its contributors are relatively optimistic that this framework can incorporate new methodologies and tools. William Brock and Steven Durlauf introduce sociological considerations into economic models and discuss the econometric challenges of modeling social interactions. They conclude that the empirical literature is still too young to make claims about the importance of social interactions. In the following contribution, the same authors explore model uncertainty. William Branch discusses Restricted Perceptions Equilibrium — an equilibrium between the economy’s stochastic process and optimally misspecified beliefs. He argues that it constitutes a natural alternative to Rational Expectations equilibrium because it allows for bounded rationality and is consistent with Muth’s original hypothesis. Masanao Aoki observes that in dealing with the tradeoff between analytical tractability and realworld relevance, existing macroeconomic models err on the side of tractability. He uses Einstein’s ‘‘Not More So’’ criterion, which suggests that simplification beyond a point is self-defeating as it destroys the very insights offered by the model. Aoki then proposes using new tools that go beyond the assumptions of DSGE models. Section Three challenges the Walrasian paradigm in macroeconomics and proposes using diffe
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