Lars P. Syll

The anatomy of stock market bubbles  [embedded content]

Having concluded seven years as chief economist at IMF, Olivier Blanchard is now considering rewriting his undergraduate macroeconomics textbook: How should we teach macroeconomics to undergraduates after the crisis? Here are some of my conclusions … Turning to the supply side, the contraption known as the aggregate demand–aggregate supply model should be eliminated. It is clunky and, for good reasons, undergraduates find it difficult to understand … These difficulties are...

Is ‘Cauchy logic’ applicable to economics? What is 0.999 …, really? It appears to refer to a kind of sum: .9 + + 0.09 + 0.009 + 0.0009 + … But what does that mean? That pesky ellipsis is the real problem. There can be no controversy about what it means to add up two, or three, or a hundred numbers. But infinitely many? That’s a different story. In the real world, you can never have infinitely many heaps. What’s the numerical value of an infinite sum? It...

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Ergodicity and the wrong way to calculate expectations (wonkish) If there was one thing I believed was a reasonable implicit assumption of economics, it was determining the expectation value upon which agents base their decisions as the “ensemble mean” of a large number of draws from a distribution … But now I’m not so sure … Rolling a dice is a good example. The expected distribution of outcomes from rolling a single dice in a 10,000 roll sequence is the...

Visiting one of Helsinki’s many nice cafés and restaurants the other day, I read the following inscription on a mirror and thought Keynes must have been here … Anyhow — slides from yours truly’s keynote presentation at the Kalevi Sorsa Foundation celebration of the 80th anniversary of Keynes’ General Theory is available here.

The Spirit of Tallis [embedded content] Heavenly beautiful!

The people inside the model have much more knowledge about the system they are operating in than is available to the economist or econometrician who is using the model to try to understand their behavior. In particular, an econometrician faces the problem of estimating probability distributions and laws of motion that the agents in the model are assumed to know. Further the formal estimation and inference procedures of rational expectations econometricians assumes that the...

Keynes’s revolution after 80 years British economist John Maynard Keynes published his General Theory on Employment, Interest and Money 80 years ago in 1936. Modern macroeconomics arose in the aftermath of its publishing, and Keynesian ideas also revolutionized economic policy making during the Bretton Woods era. Full employment became a central policy target for economists and governments. In the 1970s monetarism and rational expectations revolution...

Chicago economics — only for people unlucky when trying to think I ask myself what I could legitimately assume a person to have rational expectations about, the technical answer would be, I think, about the realization of a stationary stochastic process, such as the outcome of the toss of a coin or anything that can be modeled as the outcome of a random process that is stationary. If I don’t think that the economic implications of the outbreak of World war...