tag:blogger.com,1999:blog-2499715909956774229.post7792783205304236093..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Farmer on Farmer/KocherlakotaStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2499715909956774229.post-58903416426334133162011-03-31T09:25:34.575-07:002011-03-31T09:25:34.575-07:00It changes the supply decision of firms because ou...It changes the supply decision of firms because output is demand determined. In a micro model, an increase in income affects the demand side, but then induces firms to increase supply.<br /><br />Essentially, you are confusing cause and effect. An increase in money increases AD directly. The question then becomes, what happens to supply? In a classical model, supply is fixed so you just get inflation. In a Keynesian midel the increase in AD leads to an increase in AD. But its a shift in AD causing a movement along AS.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-91655374791274682922011-03-31T08:31:35.043-07:002011-03-31T08:31:35.043-07:00^^Except that a change in the money supply has sup...^^Except that a change in the money supply has supply-side effects -- it changes the output decision of some firms. There is no "AD" or "AS" shifter, only shocks that move both.<br /><br />Give it up already.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48082794194065633012011-03-31T07:46:13.220-07:002011-03-31T07:46:13.220-07:00If we are unable to use the AD-AS terminology, wha...If we are unable to use the AD-AS terminology, what should replace it? Is equilibrium outcome all we can talk about? For example, a technology, government, Fed, and/or preference shock hits the economy and the economy reaches a new general equilibrium.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-6086233464045531852011-03-31T03:50:00.669-07:002011-03-31T03:50:00.669-07:00I don't really agree with Roger's final pa...I don't really agree with Roger's final paragraph. Even in a "post-Lucas" model you have money affecting only aggregate demand and real variables affecting only supply. Also, the microeconomic distinction between supply and demand isn't as sharp as one might suppose, as Friedman pointed out. For example, speculation can affect both supply and demand.<br /><br />I suspect the reason the AD/AS terminology went out of favour is that it does not make much sense in a RBC model, since everything happens in the supply-side. Since all modern macro is based on RBC methodology, the language used by RBC economists (notably Prescott) has become standard. But whenever you have a significant role for money in determining output, the AD terminology is natural. Hence it's use in New Keyenesian models.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-24786098547143461912011-03-30T11:14:10.843-07:002011-03-30T11:14:10.843-07:00Anonymous,
I agree with you.Anonymous,<br /><br />I agree with you.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72485075499021181132011-03-30T10:45:01.686-07:002011-03-30T10:45:01.686-07:00Maybe language isn't something to get too hung...Maybe language isn't something to get too hung up on, but I feel like when we talk about market participants being on (or off) "demand" or "supply" curves, we're already talking about their behavior in a very particular institutional arrangment for trade: one in which, if taken literally, people and firms participate in a mechanism in which they (somehow) come to face a single linear price, and feel like they can buy or sell as much as they want to only at this price. <br />But once we've decided to think about outcomes in a search model, no such thing is true, so I have no idea what being on or off a demand or supply curve means, or for that matter, why the price-taking labor supply FOC mentioned above is relevant. But perhaps I am the one confused? Thanks Stephen (and Roger)Anonymousnoreply@blogger.com