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Workshop "Macroeconomics: Dynamic Histories", Colmar, 16-18 mai 2019
Macroeconomics: Dynamic Histories - When Statics is no longer enough
(Universidade de Brasilia)
The recent macroeconomic New Synthesis has established a particular way of treating the issue of dynamics through the merging of the dynamic framework of the Real Business Cycles with the dynamic pricing models developed by the New Keynesian approach. In this family of DSGE models, dynamics corresponds of the idea of short-run fluctuations based on both supply-side and demand-side shocks. The true stochastic process of the economy is supposed to be fully known and uncertainty comes only (and narrowly) from unpredictable random shocks. Yet, this special way of addressing the dynamics issue in terms of intertemporal general equilibrium and rational expectations has come a long way. Actually, the concept of dynamics has a very long history in macroeconomics.
Compared to other fields such as physics, economists seem to have always struggled about what should be meant by ‘dynamics’. In physics, there can be movement in statics (provided it is perfectly predictable) while in contrast dynamics necessarily implies an uncertain, irregular and unexpected movement. Regarding semantics in economics, Machlup (1959) is probably right in defining statics and dynamics as “kaleidoscopic words”.
Early monetary economics such as Cantillon and Hume analysed how an increase in the supply of currency would gradually dissipate in a rise in prices: the equilibrating process was a dynamic one in the sense that it was time-consuming. The first disentanglement attempt between statics and dynamics can be traced back to J.S. Mill (1849) who was the first to introduce the time element as a dividing line between statics and dynamics. When he stated that “economic dynamics refers to that part of economic theory in which all quantities must be dated”, Hicks (1939) continued that tradition.
Later, Jevons (1871) established the separation between static versus dynamic mechanics while relying on the concept of equilibrium: statics refers to the relations of forces at the equilibrium level whereas dynamics refers to changes towards equilibrium. This is certainly the background against which modern macroeconomics arose under the influence of Wicksell and Keynes. But yet, this distinction was explicitly denied by Kuznets (1930) because both notions imply processes under the assumption of uniformity and persistence.
This way of addressing the issue of dynamics in terms of comparative statics resurfaced in the works of Patinkin, and later of Clower and Leijonhufvud. For them, dynamics necessarily implied a disequilibrium perspective, through the study of the consequences of a change in a variable starting from an equilibrium position. The link between statics and dynamics also implied the sudy of the stability of a model, as Samuelson (1947) had argued.
The issue does not become any clearer when the attention focuses on growth or business cycles. The first dynamic stochastic models were established by Frisch (1933). Harrod (1939) defined dynamicsthe study of the determinants of rates of changes in economic variables. Domar (1946) followed along, although he was more concerned than Harrod with the investigation of steady states, which influenced Solow’s (1956) neoclassical approach to growth.
At the empirical level, dynamics might also mean forecasting the future performances of a dynamic economy. This is the way dynamic stochastic models were incorporated in the econometric literature since the pioneering works of Koopmans and the Cowles Commission in the 1940s and 1950s. In 1950, following Jan Tinbergen’s (1939) econometric model to test business cycle theories, Lawrence Klein published the first econometric model for the U.S. economy with forecasting ambition and economic policy purpose. His model started the series of econometric model building efforts to understand, to forecast and to control economic fluctuations that culminated with the large-scale models of the 1960s and early 1970s.
Our purpose is to launch a longstanding programme about the issue of dynamics in macroeconomics in a historical perspective. The workshop that will take place in Colmar (France) will address the topic in the broadest possible sense. Yet, we are already thinking of the next step, which will consist in focusing the attention on the medium run. There should be, therefore, a follow-up to this workshop.
Deadline for abstract submission: February 1st 2019
Acceptance notified before: February 15th 2019
Scientific committee: Muriel Dal Pont Legrand (Université Côte d’Azur, GREDEG CNRS), Harald Hageman (University of Hohenheim), Sylvie Rivot (Université de Mulhouse, BETA CNRS), Hans-Michael Trautwein (Oldenburg University)