The Missing Motivation in Macroeconomics

Akerlof, George A.

doi:10.1257/aer.97.1.5

Cited by 407 publications

(169 citation statements)

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“…Furthermore, while most of these papers view cultural norms as a¤ecting economic prosperity because they support cooperation and thus facilitate exchange among people (e.g. Tabellini, 2008a;Zingales, 2004, 2012;Landes, 1999), or because they enhance individual motivation (Gorodnichenko and Roland, 2011a), or because they dictate directly individual behavior (Akerlof, 2007), in our case cultural norms a¤ect macroeconomic outcomes because they are a constraint on policy makers and institutions, limiting their freedom to adopt the best policy in the given circumstances. This is a clear example of the more general view that we propose, that cultural norms can be a potentially important source of friction in political economy.…”

Section: Relation To the Literaturementioning

confidence: 93%

“…Hence it bears a link with the few papers that have attempted to insert culture into macroeconomic models (e.g. Akerlof, 2007) or test empirically whether culture can be a cause of macroeconomic imbalances (Buetzer et al, 2012). Furthermore, while most of these papers view cultural norms as a¤ecting economic prosperity because they support cooperation and thus facilitate exchange among people (e.g.…”

Section: Relation To the Literaturementioning

confidence: 99%

“…a con ‡ict arising from the interaction of people with di¤erent cultural values. The contrast we describe happens at the level of private interactions between individuals as well as at the level of political leaders that must conform to the cultural norms and beliefs of their electorate: leaders cannot pursue strategies that go against deeply rooted norms and beliefs even when doing so could be welfare-improving for their citizens 2 . This conformity constraint becomes salient in particular when leaders of two countries with di¤erent cultures come to negotiate about policies or rules that do not …t well with some traits of their original cultures.…”

Section: Introductionmentioning

confidence: 99%

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Cultural Differences and Institutional Integration

Guiso

Herrera

Morelli

2016

Journal of International Economics

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If citizens of di¤erent countries belonging to an economic union adhere to di¤erent and deeply rooted cultural norms, when these countries interact they may …nd it impossible to agree on e¢ cient policies, especially in hard times. Political leaders are bound to follow policies that do not violate their country's cultural norms. This paper provides a simple positive theory and a compelling case study of the Euro area crisis to highlight the importance of cultural clashes when economies integrate. We also provide a normative argument about the desirability of institutional integration: a political union, with a common enforcement agency, is the more bene…cial the greater is cultural diversity in an economic union.Keywords: Cultural Norms, Institutions, Euro Area, Crisis Mismanagement. JEL classi…cation numbers: D72This paper previously circulated under the title "A Cultural Clash View of the Euro Crisis." We thank two anonymous referees as well as Sascha Becker, Alberto Bisin, Serra Boranbay, Francesco Giavazzi, Gilat Levy, Assar Lindbeck, Elias Papaioannou, John Patty, Giacomo Ponzetto, Andrei Shleifer, Enrico Spolaore, Francesco Squintani, Livio Stracca, Sebastian Turban, Philippe Weil and participants at various workshops for great suggestions and comments. The usual disclaimer applies.

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Section: Relation To the Literaturementioning

confidence: 93%

Section: Relation To the Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Cultural Differences and Institutional Integration

Guiso

Herrera

Morelli

2016

Journal of International Economics

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“…For instance, Akerlof (2007) argues that a broader definition of agents' preferences which take into account the presence of realistic norms can violate many neutrality results of neoclassical economics without recurring to imperfections. Moreover, introducing heterogeneous agents or substituting the rationality assumption with insights coming from behavioral economics could substantially change the working of DSGE models.…”

Section: From Dsge To Agent-based Modelsmentioning

confidence: 99%

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

Fagiolo

Roventini

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework -the New Neoclassical Synthesis (NNS) -grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, representative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is presented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market structural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.

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“…The microfoundation basis is built on the optimization by the "representative individual", which has been shown to lead to multiple and generally unstable macro equilibria, unless the individuals have identical homothetic utility functions, or all individuals have homothetic utility functions but the relative income distribution is fixed and thus independent of prices (see Kirman 1992). Moreover, as argued by Akerlof (2007), the preferences currently commonly described in the microfoundations of these models are two narrowly defined, in failing to incorporate the norms of the decision makers. These norms reflect how the decision makers think they and others should or should not behave, even in the absence of frictions: it is not just about the money, it is also about living up to an ideal about who they think they should be (expressed in e.g.…”

Section: Introductionmentioning

confidence: 99%

When is money neutral under flexible exchange rates?

Ahtiala

2009

International Review of Economics & Finance

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The paper studies the conditions for the neutrality of money under flexible exchange rates in an extended real-wage Mundell-Fleming model, with special emphasis on the specification of the behavior functions to correspond to their foundations in closedeconomy macrotheory.It is shown that monetary expansion causes output first to decline, to eventually rise above its original level. However, if interest earnings on foreign securities dominate the trade balance in the expression for the exchange rate, monetary expansion leads to an appreciation of the exchange rate, while having an expansionary output effect.Money is neutral in the long run if either the wealth effect or foreign interest payments is abstracted from; if both are abstracted from, it is neutral also in the short run. Short and long-run neutrality results also if wealth consists only of foreign securities. The above responses hold both for net creditors and -with a minor qualificationdebtors. JEL classification number: F41

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The Missing Motivation in Macroeconomics

Cited by 407 publications

References 72 publications

Cultural Differences and Institutional Integration

Cultural Differences and Institutional Integration

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

When is money neutral under flexible exchange rates?

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