Lars P. Syll

NAIRU — a long-run equilibrium slippery eel The concept of equilibrium, of course, is an indispensable tool of analysis … But to use the equilibrium concept one has to keep it in place, and its place is strictly in the preliminary stages of an analytical argument, not in the framing of hypotheses to be tested against the facts, for we know perfectly well that we shall not find facts in a state of equilibrium. Yet many writers seem to conceive the...

Paul Krugman — mistaking the map for the territory Paul Krugman has — together with Robin Wells — written an economics textbook that is used all over the world. As all the rest of mainstream economics textbooks, it stresses from the first pages the importance of supplying the student with a systematic way of thinking through economic problems with the help of simple models. Modeling is all about simplification … A model is a simplified representation of...

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...

 [embedded content]

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...