Discussion with Olivier Blanchard on Macroeconomic
Models
In recent post by Blanchard, entitled ‘The Need for
Different Classes of Macroeconomic Models’, he underlined the need for
different classes of macro models for different tasks. Two classes of models
are considered. First, theoretical models that are micro founded and are intended
to clarify theoretical issues within a general equilibrium setting, like DSGE
models. Second, policy models that might not be micro founded and aimed at
analyzing specific issues related to the macroeconomic policy. Blanchard
describes the finding of one model that can respond to both uses as a pipe
dream.
In a correspondence discussion with Blanchard, I
expressed my surprise vis-à-vis the proposition of separation between
theoretical and policy models. The aim of science is the unification, I think,
rather than separation. If we look at physics, the efforts of all scientists
are oriented to understand and consequently to provide theories to what they
observe. In line with this observation, I believe that macroeconomics, like
physics or any other science, should have the objective of unifying what we
observe and what we theorize. In favor of this claim, one can notice that
macroeconomics is very young science. At the end, there is still a long way to
go to achieve this.
In response to my claim, Blanchard thinks that the
goal of unifying both classes of models is unattainable, surely today, and
probably forever, given the complexity of seven billion people interacting in
complex ways. The main point is that trying to do both classes in one model
today is counterproductive.
To conclude, I think that the complexity of interactions
between economic agents is surmountable if we internalize those interactions
and behaviors in our models, we can arrive at the stage where there are no
conflicts between theory and practice. Especially, the research agenda on the New
Keynesian economics studied within a behavioral framework is oriented to this
aim.
