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Kingston Masters Political Economy 05: Neoclassical Growth theory, RBC & DSGE models

Summary:
(This is an incomplete lecture due to a lack of time to prepare it: what I should have spent 2 months preparing I had to do in 2 weeks–while also moving house. Hopefully I’ll find the time to complete it when writing next year’s lectures.) I cover the reasons why the Neoclassical growth model–on which ...

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(This is an incomplete lecture due to a lack of time to prepare it: what I should have spent 2 months preparing I had to do in 2 weeks–while also moving house. Hopefully I’ll find the time to complete it when writing next year’s lectures.)



I cover the reasons why the Neoclassical growth model–on which both RBC (Real Business Cycle) and DSGE (Dynamic Stochastic General Equilibrium) models are based–has an unstable equilibrium. Given their Neoclassical fetish for seeing stable equilibrium everywhere, this was not at all the mathematical result they would have wanted.



But as usual they turned failure into a virtue by developing the idea of “jump” variables in dynamic systems, not worrying that this jump relied upon consumers having the combined wisdom of Solomon and Nostradamus.



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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