What Do We Know About Macroeconomics that Fisher and Wicksell Did Not?

49 Pages Posted: 18 Oct 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Date Written: February 2000

Abstract

The answer to the question in the title is: A lot. In this essay, I argue that the history of macroeconomics during the 20th century can be divided in three epochs: Pre 1940. A period of exploration, where macroeconomics was not macroeconomics yet, but monetary theory on one side, business cycle theory on the other. A period during which all the right ingredients, and quite a few more, were developed. But also a period where confusion reigned, because of the lack of an integrated framework. From 1940 to 1980. A period of consolidation. A period during which an integrated framework was developed starting with the IS-LM, all the way to dynamic general equilibrium models and used to clarify the role of shocks and propagation mechanisms in fluctuations. But a construction with an Achille's heel, namely too casual a treatment of imperfections, leading to a crisis in the late 1970s. Since 1980. A new period of exploration, focused on the role of imperfections in macroeconomics, from the relevance of nominal price setting, to incompleteness of markets, to asymmetric information, to search and bargaining in decentralized markets. Exploration often feels like confusion. But behind it may be one of the most productive periods of research in macroeconomics.

Suggested Citation

Blanchard, Olivier J., What Do We Know About Macroeconomics that Fisher and Wicksell Did Not? (February 2000). NBER Working Paper No. w7550. Available at SSRN: https://ssrn.com/abstract=1693009

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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