Topics in applied macrodynamic theory

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This book explores macro dynamics from an applied, empirical perspective, emphasizing a Keynesian modeling philosophy. It aims to revive this theoretical viewpoint regarding the macroeconomy, distinguishing itself from mainstream literature that typically employs the Dynamic Stochastic General Equilibrium (DSGE) approach. The DSGE framework relies on assumptions of intertemporally optimizing agents, rational expectations, competitive markets, and flexible prices and wages for market clearing. In recent years, the New Keynesian approach has largely adopted the DSGE framework, emphasizing monopolistic competition, sticky wages and prices, and various rigidities. Despite the advancements, the intertemporal approach, which relies on smoothly optimizing agents and quick adjustments to meet marginal conditions in product, labor, and capital markets, has struggled to align with certain stylized facts. Additionally, these intertemporal decision models often overlook macroeconomic feedback effects and their stabilizing or destabilizing impacts. Such feedback mechanisms, crucial for understanding the interactions among markets, have been theoretically and empirically examined since the 1930s, highlighting a significant gap in contemporary macroeconomic modeling.