by One of the major issues with the internal logic of neoclassical macro is the handling of credit risk. The problem of credit is acute for Dynamic Stochastic General Equilibrium models because they are allegedly based on “microfoundations.” However, the theoretical problems remain for any aggregated mathematical model. The advantage of heterodox economists is that they do not make a big deal about the alleged internal consistency of their mathematical models, and so they are more willing to hand wave around the issue.(To be fair, if we go back to earlier “mainstream” economists, the issues I raised here were probably discussed in the textual analysis. However, mainstream economics is an academic field where knowledge is effectively subtractive, and so any earlier insights into credit were
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One of the major issues with the internal logic of neoclassical macro is the handling of credit risk. The problem of credit is acute for Dynamic Stochastic General Equilibrium models because they are allegedly based on “microfoundations.” However, the theoretical problems remain for any aggregated mathematical model. The advantage of heterodox economists is that they do not make a big deal about the alleged internal consistency of their mathematical models, and so they are more willing to hand wave around the issue.Bond Economics(To be fair, if we go back to earlier “mainstream” economists, the issues I raised here were probably discussed in the textual analysis. However, mainstream economics is an academic field where knowledge is effectively subtractive, and so any earlier insights into credit were lost by 2007, only to be re-discovered the hard way.)
The issue is the notion of aggregation — we could possibly get a handle on credit in an agent-based model. I have discussed this topic before — for example, Hyman Minsky’s “Financial Instability Hypothesis” refers to “units,” which would be translated into “agents” in modern “agent-based modelling” terminology. Although I am pretty sure that I have discussed this before, I want to take a stab at the issues with credit modelling alone.…
The Perplexing Problem Of Credit In Macro
Brian Romanchuk
http://www.bondeconomics.com/2022/07/the-perplexing-problem-of-credit-in.html