andrew_gelman_stats andrew_gelman_stats-2014 andrew_gelman_stats-2014-2195 knowledge-graph by maker-knowledge-mining
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Introduction: I received the following email the other day: Given your past criticisms of this issue in your posts, I do not think you will like my co-authored paper , “Microfoundations of the Business Cycle and Monetary Shocks” . . . Given this lead-in, of course I had to take a look. The paper is by James Holmes, John Holmes, and Patricia Hutton, it’s called “Microfoundations of the Business Cycle and Monetary Shocks,” and they say: Non-rational expectations can produce larger expected real income for some or all agents than rational expectations. . . . Hence, “rational expectations” are not rational, and “money illusion” can be optimal and satisfy the “Lucas Critique.” . . . Nominal wage rigidity or stickiness can be the rational response of firms or workers and need not be evidence of money illusion. I asked Holmes why he thought I would not like the paper, as I am not opposed to microfoundations when they are of interest. My opposition is to the attitude that microfoundations a
sentIndex sentText sentNum sentScore
1 I received the following email the other day: Given your past criticisms of this issue in your posts, I do not think you will like my co-authored paper , “Microfoundations of the Business Cycle and Monetary Shocks” . [sent-1, score-0.187]
2 The paper is by James Holmes, John Holmes, and Patricia Hutton, it’s called “Microfoundations of the Business Cycle and Monetary Shocks,” and they say: Non-rational expectations can produce larger expected real income for some or all agents than rational expectations. [sent-5, score-0.717]
3 Hence, “rational expectations” are not rational, and “money illusion” can be optimal and satisfy the “Lucas Critique. [sent-9, score-0.162]
4 Nominal wage rigidity or stickiness can be the rational response of firms or workers and need not be evidence of money illusion. [sent-13, score-0.623]
5 I asked Holmes why he thought I would not like the paper, as I am not opposed to microfoundations when they are of interest. [sent-14, score-0.46]
6 My opposition is to the attitude that microfoundations are necessary for macro understanding. [sent-15, score-0.706]
7 Holmes replied that his point was that his article was an example of how a simple micro model can yield new and unconventional insights which would not have been obtained simply by studying macro patterns in a statistical, model-free way. [sent-16, score-0.785]
8 (Here I’m using the term “model” in the economic sense of a mathematical formulation of individual decisions, rather than in the statistical sense of a joint probability distribution. [sent-17, score-0.152]
9 ) I am sympathetic to the sorts of arguments presented in this paper but I don’t have the energy to go through what the authors are actually saying. [sent-25, score-0.265]
10 I have no training in studying this sort of model (my last econ class was in 11th grade! [sent-26, score-0.322]
11 ) and I can’t bring myself right now to put in the effort required to follow it all. [sent-27, score-0.114]
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Introduction: I received the following email the other day: Given your past criticisms of this issue in your posts, I do not think you will like my co-authored paper , “Microfoundations of the Business Cycle and Monetary Shocks” . . . Given this lead-in, of course I had to take a look. The paper is by James Holmes, John Holmes, and Patricia Hutton, it’s called “Microfoundations of the Business Cycle and Monetary Shocks,” and they say: Non-rational expectations can produce larger expected real income for some or all agents than rational expectations. . . . Hence, “rational expectations” are not rational, and “money illusion” can be optimal and satisfy the “Lucas Critique.” . . . Nominal wage rigidity or stickiness can be the rational response of firms or workers and need not be evidence of money illusion. I asked Holmes why he thought I would not like the paper, as I am not opposed to microfoundations when they are of interest. My opposition is to the attitude that microfoundations a
Introduction: Rajiv Sethi writes the above in a discussion of a misunderstanding of the economics of Keynes. The discussion is interesting. According to Sethi, Keynes wrote that, in a depression, nominal wages might be sticky but in any case a decline in wages would not do the trick to increase hiring. But many modern economics writers have missed this. For example, Gary Becker writes, “Keynes and many earlier economists emphasized that unemployment rises during recessions because nominal wage rates tend to be inflexible in the downward direction. . . . A fall in price stimulates demand and reduces supply until they are brought back to rough equality.” Whether Becker is empirically correct is another story, but in any case he is misinterpreting Keynes. But the actual reason I’m posting here is in reaction to Sethi’s remark quoted in the title above, in which he endorses a 1975 paper by James Tobin on wages and employment but remarks that Tobin’s paper did not include the individual-level de
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Introduction: John Sides followed up on a discussion of his earlier claim that political independents vote for president in a reasonable way based on economic performance. John’s original post led to the amazing claim by New Republic writer Jonathan Chait that John wouldn’t “even want to be friends with anybody who” voted in this manner. I’ve been sensitive to discussions of rationality and voting ever since Aaron Edlin, Noah Kaplan, and I wrote our article on voting as a rational choice: why and how people vote to improve the well-being of others. Models of rationality are controversial In politics, just as they are in other fields ranging from economics to criminology. On one side you have people trying to argue that all behavior is rational, from lottery playing to drug addiction to engaging in email with exiled Nigerian royalty. Probably the only behavior that nobody has yet to claim is rational is blogging, but I bet that’s coming too. From the other direction, lots of people poi
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Introduction: I received the following email the other day: Given your past criticisms of this issue in your posts, I do not think you will like my co-authored paper , “Microfoundations of the Business Cycle and Monetary Shocks” . . . Given this lead-in, of course I had to take a look. The paper is by James Holmes, John Holmes, and Patricia Hutton, it’s called “Microfoundations of the Business Cycle and Monetary Shocks,” and they say: Non-rational expectations can produce larger expected real income for some or all agents than rational expectations. . . . Hence, “rational expectations” are not rational, and “money illusion” can be optimal and satisfy the “Lucas Critique.” . . . Nominal wage rigidity or stickiness can be the rational response of firms or workers and need not be evidence of money illusion. I asked Holmes why he thought I would not like the paper, as I am not opposed to microfoundations when they are of interest. My opposition is to the attitude that microfoundations a
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