Saturday, September 12, 2009

Chicago Strikes Back

By way of a New Keynesian (Greg Mankiw's blog), I learn about John Cochrane's draft of counter attack against Krugman's innuendo.

I like this particular para:
(H)e argues for a future of economics that “recognizes flaws and frictions,” and incorporates alternative assumptions about behavior, especially towards risk-taking. To which I say, “Hello, Paul, where have you been for the last 30 years?” Macroeconomists have not spent 30 years admiring the eternal verities of Kydland and Prescott’s 1982 paper. Pretty much all we have been doing for 30 years is introducing flaws, frictions and new behaviors, especially new models of attitudes to risk, and comparing the resulting models, quantitatively, to data. The long literature on financial crises and banking which Krugman does not mention has also been doing exactly the same.
Which I would also like to shout at emphatically say to our friends the economics no-no (some are within the profession itself) who keep complaining about the lack of behavioural/social interaction/(insert what you want) contents of the discpline,

"Hello, where have you been?"

I recall a conversation with Ujang. He used different words, that is, "ke mana aje, elo?"

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