By R. Werner
A turning out to be literature on details imperfections, credits markets and non-Walrasian results poses an important problem to conventional techniques in economics. This ebook unifies key points of those demanding situations within the formula of a brand new macroeconomic paradigm. Its validity is demonstrated utilizing information on Japan, one of many greatest empirical demanding situations to the "old" paradigm. within the technique, a contribution is made in the direction of a greater realizing of the numerous "puzzles" or "anomalies" of the japanese economic climate of the earlier a long time. although, the recent method is acceptable a long way past Japan.
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Extra info for The New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic Performance
Example text
It can be seen that the deductive methodology is the fundamental reason why economics could end up so far removed from reality. If a gap between reality and theory is pointed out (by some pesky inductivist), deductivism does not require neoclassical economists to change their theory. Instead, deductivists are entitled to demand that reality be changed to suit their theory (which is correct by axiom). If the long list of assumptions required Prologue 19 for neoclassical models to work – perfect information, complete markets, no government intervention, perfect competition, no increasing returns to scale – does not seem to reflect reality, it is logically consistent for deductivists to suggest that structural changes be implemented so that reality moves closer in line with their models.
It has demonstrated that demand will equal supply if and only if everyone had perfect information. The string of highly restrictive and unrealistic assumptions on which the neoclassical models are based are like the uncomfortable small print in a contract that gets easily overlooked. But they have far-reaching implications. Thanks to the rigorous neoclassical models we have learned just how stringent and how exceptional the necessary conditions are in order to obtain market equilibrium, or to 20 New Paradigm in Macroeconomics obtain the result that free markets or free trade produce an optimal resource allocation.
18 While they differ in the size of the net effect of fiscal policy, they agree that the transmission mechanism (and potential crowding out) occurs via interest rates. 19 What all these formulations (classical, Keynesian and post-Keynesian) share is that the ineffectiveness of fiscal policy is the result of increased interest rates. In the case of Japan it was indeed argued by some economists during the first half of the 1990s that increased bond issuance to fund fiscal spending would lower bond prices and push up long-term interest rates.
