Wednesday, October 13, 2010
The tip of the Diamond iceberg
I have long thought that Diamond deserved a Nobel. His work, though, is wide-ranging and is not at all confined to what he was cited for - search theory and the labor market. His 1965 paper, "National Debt in a Neo-Classical Growth Model" is a wonderful paper, absolutely canonical. He adds capital to Samuelson's Pure Consumption Loans model (the Overlapping Generations model). Even in the area of labor markets, one of his papers - sorry I don't have the cite to hand - uses search theory and the idea of what have come to be called thick-market externalities to build a macro model with multiple Pareto-ranked real equilibria- a very important paper in that branch of the "new Keynesian" literature - unfortunately the less well-known branch- that did not focus on "sticky prices" as the root of all macroeconomic evil.