Économie et Statistique n° 451-452-453 - Macroeconomic modeling : continuity, tensions
The “New Neoclassical Synthesis”: An Introduction
The new Keynesian models known as the “new neoclassical synthesis” claim to rest on a rigorous conception of the economy. They belong to the current in macroeconomics that has anchored short-term analysis to theories of long-term growth-a current that gave birth to real business cycle (RBC) theory. All these models are an extension of the critique formulated by Robert Lucas, who argued that the only way to avoid the errors due to direct readings of econometric regularities is to identify the parameters of the agents' decision-making problem. This identification is the only means to avoid observational equivalence situations, where the same “empirical fact” may fit several theories, calling for totally divergent economic-policy actions. By proposing a rigorous explanatory framework for short-term adjustments-something that the old generation of the “first neoclassical synthesis”, in most cases, merely outlined-these models set their sights high. To explain fluctuations, they introduce various types of “shocks”, also explained in microeconomic terms. These shocks produce “disturbed” intertemporal equilibria. The new models also focus attention on the issue of consistency between behaviours described in a model. The new models are often hampered by their complex, tangled appearance, which makes them hard to adopt. Using a simple, typical model in this category-the one offered by Peter N. Ireland in 2004-we present the basic characteristics of this modelling approach and compare it with other macroeconomic syntheses. Enhancements to this basic structure allow a deeper scrutiny of issues submitted to macroeconomic analysis, although it will sometimes be difficult to reconcile the need for consistency with the goal of realistic modelling.