Sunday, October 30, 2011

Tom Sargent

There is an interview with Tom Sargent in the Sunday NYT. Sargent makes the point that modern macroeconomics is neither political nor inherently un-Keynesian. From the article:
Professor Sargent described himself as a scientist, a “numbers guy” who is “just seeking the truth” as any good researcher does.

“If you go to seminars with guys who are actually doing the work and are trying to figure things out, it’s not ideological,” he said. “Half the people in the room may be Democrats and half may be Republicans. It just doesn’t matter.”
Today, Professor Sargent says that in some ways he actually is a Keynesian, but he qualified that claim, too. “I’m happy to say I am a Harrison-Kreps-Keynesian,” he said, citing work by two scholars at Stanford, J. Michael Harrison and David M. Kreps. They developed a theory of speculative investor behavior and stock-bubble formation that subtly modifies rational expectations “in a beautiful way” and “captures Keynes’s argument, makes it rigorous, and pushes it further,” he said.
Sargent is kidding us a bit here. What he finds interesting about Keynes is an idea formalized and developed in this paper by Harrison and Kreps. When Sargent says he is "actually a Keynesian," that's not a Hicks IS-LM Keynesian, as a reading of Harrison-Kreps should make clear.

Here's something interesting. Lucas and Sargent once wrote a paper, "After Keynesian Macroeconomics," that you might think, from the title, is an exercise in Keynes-bashing. Actually, not so. Here is the last paragraph:
The objectives of equilibrium business cycle theory are taken, without modification, from the goal which motivated the construction of Keynesian macroeconometric models: to provide a scientifically-based means of assessing, quantitatively, the likely effects of alternative economic policies. Without the econometric successes achieved by the Keynesian models, this goal would be simply inconceivable. However, unless the now-evident limits of these models are frankly acknowledged and radically new directions taken, the real accomplishments of the Keynesian revolution will be lost as surely as those we know to be illusory.

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