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Transcending the Lucas Critique & simple dynamic modelling with Minsky

Summary:
The Lucas Critique has ruled economics for the last 40 years, and led it into a dead-end as well. In this talk to the Economics for Everyone conference run by the Post Crash Economics Society in Manchester, I argue that micro-founded models fail because of the emergent properties that characterise complex systems. An alternative approach that transcends Lucas’s well-founded objection to ad-hoc model-building is to build models from strictly true macroeconomic identities. I show that three simple identities–the employment rate, the wages share of income, and the private-debt-to-GDP ratio–are sufficient to build a simple dynamic model that generates the possibility of a financial crisis. I also give a high-speed but I think comprehensible tutorial on using Minsky, the Open Source monetary modelling program.

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The Lucas Critique has ruled economics for the last 40 years, and led it into a dead-end as well. In this talk to the Economics for Everyone conference run by the Post Crash Economics Society in Manchester, I argue that micro-founded models fail because of the emergent properties that characterise complex systems. An alternative approach that transcends Lucas’s well-founded objection to ad-hoc model-building is to build models from strictly true macroeconomic identities. I show that three simple identities–the employment rate, the wages share of income, and the private-debt-to-GDP ratio–are sufficient to build a simple dynamic model that generates the possibility of a financial crisis. I also give a high-speed but I think comprehensible tutorial on using Minsky, the Open Source monetary modelling program.


The Presentation
Powerpoint Slides

Minsky Files (right click & choose “Save As” to download)

Files build during this talk

Demo file 1: Goodwin

Demo file 2: Goodwin

Demo file 3: Minsky

Files embedded in the presentation

Reduced form

Flowchart

Flowchart including Godley Table

Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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