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A Critical Essay on Modern Macroeconomic Theory

Author

Listed:
  • Frank Hahn
  • Robert Solow

Abstract

In the early 1980s, rational expectations and new classical economics dominated macroeconomic theory. This essay evolved from the authors' profound disagreement with that trend. It demonstrates not only how the new classical view got macroeconomics wrong, but also how to go about doing macroeconomics the right way. Hahn and Solow argue that what was originally offered as a normative model based on perfect foresight and universal perfect competition has been almost casually transformed into a model for interpreting real macroeconomic behavior. After explaining microeconomic foundations, the authors introduce a better macro model, one that can say useful things about the fluctuation of employment, the correlation between wages and employment, and the role for corrective monetary policy.

Suggested Citation

  • Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x, April.
    • Handle: RePEc:mtp:titles:026258154x
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    More about this item

    Keywords

    macroeconomic theory; employment; wages; monetary policy;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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