tag:blogger.com,1999:blog-4900303239154048192.post66379884251518900..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Why You Don’t See the Aggregate Supply—Aggregate Demand Model in the Econ BlogosphereUnknownnoreply@blogger.comBlogger12125tag:blogger.com,1999:blog-4900303239154048192.post-56789633339476294322013-06-02T15:20:29.107-04:002013-06-02T15:20:29.107-04:00I'll add to here a comment from some I put on ...I'll add to here a comment from some I put on economistsview after Waldmann and Krugman got into the fray. To be able to make the leap from income-expenditure to AS-AD one needs to make the former be done in nominal terms. It is doing it in real terms that tends to make things into such a mess. However, there remains a loose end in determing the intercept of the AE, wherein remains the nominal-real tangle. Otherwise, it works through reasonably logically and usefully.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-43417023430413180712013-06-02T13:08:04.450-04:002013-06-02T13:08:04.450-04:00I know this is not Peter's question, and I do ...I know this is not Peter's question, and I do think that while we do not see it all that much in the econoblogosphere, some do use AS-AD, and certainly in private conversations, quite "respectable" economists will talk about AS versus AD effects when discussing macro.<br /><br />One way to put them together is to use the Keynesian income-expenditure model to derive the position of the AD curve. Obviously the upward-sloping AS curve has some problems and is a bit of a handwave, but one can find it described as in the textbooks in one of the later chapters of Keynes's GT, 23, I think. It is not that awful and generally tells one more about policy than does most DSGEs.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-70047164261318580512013-06-02T13:08:03.737-04:002013-06-02T13:08:03.737-04:00I know this is not Peter's question, and I do ...I know this is not Peter's question, and I do think that while we do not see it all that much in the econoblogosphere, some do use AS-AD, and certainly in private conversations, quite "respectable" economists will talk about AS versus AD effects when discussing macro.<br /><br />One way to put them together is to use the Keynesian income-expenditure model to derive the position of the AD curve. Obviously the upward-sloping AS curve has some problems and is a bit of a handwave, but one can find it described as in the textbooks in one of the later chapters of Keynes's GT, 23, I think. It is not that awful and generally tells one more about policy than does most DSGEs.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-47155024642216845412013-06-02T10:39:40.050-04:002013-06-02T10:39:40.050-04:00It is a mistake to dismiss models with fewer varia...It is a mistake to dismiss models with fewer variables and replace them with models with more variables when the simple models are already difficult to tune to real world data.<br /><br />A model with more variables is only useful in science when the simple models are well understood and their parameters easily determined.<br /><br />Models are exponentially more difficult to tune to data as you start tracking more variables. You quickly get problems of overfitting because of scarce data on particular combinations of variable values. Instead of telling you more precise things about the state of your system, it locks onto spurious patterns that happened by chance in your data. This means the model no longer allows you to make predictions about unknowns but instead only describe in too much details the past knowns.<br /><br />Anybody contemplating tradoffs between simpler and more complex models should read Yudkowski's essay on the subject "A Technical Explanation of Technical Explanation":http://yudkowsky.net/rational/technicalBenoit Essiambrehttps://www.blogger.com/profile/09777196965771952105noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-57099418350082129012013-06-02T09:48:19.347-04:002013-06-02T09:48:19.347-04:00Peter: I disagree.
1. I have done a number of pos...Peter: I disagree.<br /><br />1. I have done a number of posts using the AS-AD framework. When I take the trouble to use Paint, I even draw the picture. I did one just yesterday. Some people sometimes snicker at some of my posts, but I don't remember anyone snickering at me for using the AS-AD framework. But I'm not sure if I'm an outlier in the blogosphere. It might just be that some bloggers just don't bother to draw the picture.<br /><br />2. The AD curve does not have to assume the money supply is held fixed. For example, if the central bank is targeting the rate of interest (or real GDP) in the short run, but targeting the price level in the long run, you get a vertical short run AD curve and a horizontal long run AD curve. And this is roughly what modern central banks do (except they target inflation rather than the price level, so maybe you should put the inflation rate rather than the price level on the vertical axis). See for example my old post: http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/03/why-the-lm-is-usually-vertical-and-the-ad-curve-usually-horizontal.html<br /><br />Or if the central bank targets NGDP you get a rectangular hyperbola AD curve.<br /><br />Maybe a better way to pose the question is a normative one: what shape ought the central bank choose for the AD curve? http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/11/whats-the-best-shape-for-the-ad-curve.html<br /><br />3. You can draw an AS curve without assuming that output prices adjust faster than input prices. The key is that what we call an AS curve isn't really an aggregate *supply* curve, especially in the short run. Because a *supply* curve is supposed to tell us how much firms *want* to sell, and the "AS" curve in macro doesn't necessarily really mean that. Monopolistically competitive firms don't even have *supply* curves. We should just call it "the other curve"! But if you keep that in mind, there's nothing problematic about representing the standard DSGE model, which assumes monopolistically competitive price-setting firms, in a simple AS-AD picture like I do here: http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/01/macroeconomics-with-monopolistic-competition-in-pictures.htmlNick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-72500358216785876422013-06-02T09:21:00.142-04:002013-06-02T09:21:00.142-04:00Testing first, because I keep getting trapped in s...Testing first, because I keep getting trapped in spam filters, even on my own blog!!Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-70944063253041875682013-06-02T00:38:02.936-04:002013-06-02T00:38:02.936-04:00I seem to have lost a comment to the spam filter.....I seem to have lost a comment to the spam filter...Unknownhttps://www.blogger.com/profile/16307937139237652220noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-65180545352257910762013-06-02T00:37:13.302-04:002013-06-02T00:37:13.302-04:00It's hardly the only pedagogical lie going on ...It's hardly the only pedagogical lie going on here, incidentally: over in micro we still teach undergraduates and high-schoolers all about Marshallian "consumer and producer surplus", in a way that all but collapses once we ask graduate freshmen to discard partial for general eq, and shaded graphs for convex sets and fixed-point theorems.<br /><br />Again, (1) Paul Samuelson Did It (2) it's helluva a lot simpler.Unknownhttps://www.blogger.com/profile/16307937139237652220noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-21289306691685287652013-06-02T00:24:31.967-04:002013-06-02T00:24:31.967-04:00You've explained it already: it gets students ...You've explained it already: it gets students "thinking like economists" whilst still remaining extremely simple, and there's no point trying to correct its most egregious flaws because the whole hydraulic approach is junk anyway. <br /><br />We could all teach IS-MP instead but what for? Students who actually go on to EC300 classes will be discarding all of it. And in the meanwhile we lose six decades of pedagogical tradition since Paul A. Samuelson first invented the practice of starting with AS/AD and going into an LRAS/SRAS distinction nobody believes any more, etc.Unknownhttps://www.blogger.com/profile/16307937139237652220noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-77509740732475080032013-06-01T23:56:00.781-04:002013-06-01T23:56:00.781-04:00Gang, this isn't about what kind of macro mode...Gang, this isn't about what kind of macro model you'd like to see in the textbooks. That's worth discussing, but not here. What's on the table is how we should understand the intense attachment of intro macro textbooks (and instructors) to AS-AD in spite of the fact that they would never want to be seen using it in polite company.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-6009456940074706132013-06-01T23:01:54.216-04:002013-06-01T23:01:54.216-04:00IS/LM still has a long and healthy life in its Mun...IS/LM still has a long and healthy life in its Mundell-Fleming international-trade incarnation, where the main issues of interest can be treated quite well without resort to the complexity of DSGE.<br /><br />My impression is that the biggest problem with simple IS/LM is the sleight of hand between nominal and real interest rates; you can construct AS and AD to avoid the problems you describe (e.g., IS-MP to endogenize the money supply), but suppressing the nominal/real magic is harder. Given that this a primary issue in domestic policy, there's no way to resurrect IS-LM except for pedagogy.<br /><br />Unless, again, you're working in trade macro and have explicit interest rate divergences anyway...Unknownhttps://www.blogger.com/profile/16307937139237652220noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-33790028866470233252013-06-01T22:34:13.746-04:002013-06-01T22:34:13.746-04:00I am recently developing another model based on ag...I am recently developing another model based on aggregate supply and Effective Demand. That is right, effective demand. It gives the same but much more information than the AS-AD model. Here is the latest post on the model.<br />http://effectivedemand.typepad.com/ed/2013/05/aggregate-supply-effective-demand-model-points-of-price-dynamics.htmlAnonymousnoreply@blogger.com