Lars P. Syll

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Textbooks — peddling lies about money and finance A couple of years ago — in a debate with James Galbraith and Willem Buiter — Paul Krugman made it perfectly clear that he was a strong believer of the ‘loanable funds’ theory. Unfortunately, this is not an exception among ‘New Keynesian’ economists. Neglecting anything resembling a real-world finance system, Greg Mankiw — in his intermediate textbook Macroeconomics — more or less equates finance to the...

Debunking the NAIRU hoax In our extended NAIRU model, labor productivity growth is included in the wage bargaining process … The logical consequence of this broadening of the theoretical canvas has been that the NAIRU becomes endogenous itself and ceases to be an attractor — Milton Friedman’s natural, stable and timeless equilibrium point from which the system cannot permanently deviate. In our model, a deviation from the initial equilibrium affects not...

DSGE models in the ‘New Keynesian’ repair shop The problem of the DSGE-models (and more generally of rational expectations macroeconomic models) is that they assume extraordinary cognitive capabilities of individual agents. Recent developments in other disciplines including psychology and brain science overwhelmingly document that individual agents struggle with limited cognitive abilities, restricting their capacity to understand the world. As a result,...

What does concern me about my discipline … is that its current core — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one … While it often makes sense to assume rational expectations for a limited application to isolate a particular mechanism that is distinct from...

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