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  5. Macroeconomic Modeling in the U.S. and Europe: A Historical Perspective
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Macroeconomic Modeling in the U.S. and Europe: A Historical Perspective

Paper Session

Saturday, Jan. 6, 2024 12:30 PM - 2:15 PM (CST)

Grand Hyatt, Independence
Hosted By: History of Economics Society
  • Chair: Aurélien Saïdi, Paris Nanterre University

General Equilibrium Models with Rationing: The Making of a ‘European Specialty’

Romain Plassard
,
University Paris-Dauphine
Matthieu Renault
,
University Paris I Pantheon-Sorbonne

Abstract

Europe played a pivotal role in advancing research on General Equilibrium Models with
Rationing (GEMR). This paper sheds light on the origins and motivations behind this
development. Our study highlights that the emergence and evolution of GEMR can be traced
back to France and Belgium in the mid-1970s, gradually gaining momentum throughout
Europe. In our analysis, we identify three key factors that contributed to the widespread
adoption of GEMR across Europe. Firstly, GEMR presented novel research avenues in the
realms of microeconomics, macroeconomics, and econometrics, thereby capturing the attention
of scholars in these fields. Secondly, influential figures played a crucial role by not only
advocating for GEMR but also possessing the necessary institutional resources to stimulate
further research. Notably, renowned economists such as Drèze at the Center for Operations
Research and Econometrics (Belgium), Pierre-Yves Hénin at Paris I University (France),
Werner Hildenbrand at the University of Bonn (Germany), and Jean-Jacques Laffont at
Toulouse School of Economics (France) left a lasting impact on the dissemination of GEMR.
Thirdly, specific challenges faced by the continent played a significant role in driving the
utilization of GEMR. The persistent issue of unemployment in Western Europe and the
planning dynamics in Eastern Europe presented compelling reasons to explore the potential of
GEMR as a solution. By providing insights into the historical context and key influencers, this
presentation contributes to a comprehensive understanding of the development and diffusion of
GEMR across Europe.

European and American Economists’ Responses to Unemployment in the 1980s

Roger Backhouse
,
University of Birmingham
James Forder
,
University of Oxford
Christina Laskaridis
,
Open University

Abstract

The usage of the terms ‘natural rate of unemployment’ and NAIRU (Non-Accelerating Inflation
Rate of Unemployment) in English-language publications are considered and compared. It is
argued that contrary to what has sometimes been suggested, there no consistent difference in
the economic theory underlying the two ideas. On the other hand, there is, to a significant extent,
and particularly in the 1980s, a difference in usage of the two terms attributable to differences
in the questions being addressed by various authors. That difference, in turn, arose substantially
from the different macroeconomic experiences of the two continents. In the 1980s, faced with
persistently high unemployment, European economists developed structural econometric
models seeking to understand the determination of the NAIRU. Thereafter, usage becomes
more homogeneous and choices about it seem to become much more a matter of personal taste
or habit.

Household Heterogeneity in Macroeconomic Models: A Historical Perspective

Beatrice Cherrier
,
CNRS and Ecole Polytechnique
Pedro Duarte
,
Insper
Aurélien Saïdi
,
Paris Nanterre University

Abstract

In this paper, we trace the rise of heterogeneous household models in mainstream macroeconomics from the turn of the 1980s to the early 2000s, when these models evolved into an identifiable and consistent literature. We show that different communities across the US and Europe considered heterogeneous agents for various reasons and developed models that differed in their theoretical and empirical strategies. Minnesota economists primarily focused on incorporating stochastic heterogeneity into general equilibrium models. Other researchers refined growth models or tried to find alternatives to the permanent income hypothesis, leading them to explore more structural heterogeneity. We also document the computational challenges that some of these communities faced, how they gradually became aware of each other's work, and how they faced criticisms from macro- and microeconomists, many of them trained in European countries and dissatisfied with the theoretical and empirical aggregation strategies underlying these models.
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • B2 - History of Economic Thought since 1925