By James E Hartley
Rpresentative agent versions became a primary technique of learning the macroeconomy in smooth economics with out there being a lot dialogue within the literature approximately their propriety or usefulness. This quantity evaluates using those versions in macroeconomics, interpreting the reasons for his or her use and concluding that consultant agent types are neither a formal nor a very important technique of learning combination behaviour.
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Additional resources for Representative Agent in Macroeconomics (Routledge Frontiers of Political Economy)
THE LUCAS CRITIQUE Much of the early new classical macroeconomic work was primarily done with macroeconomic models. Even the famous (or infamous, depending on your point of view) policy ineffectiveness models (Sargent and Wallace, 1975, 1976) and the unpleasant monetarist arithmetic models (Sargent and Wallace, 1981) were pure macroeconomic models. (It should be noted that the authors were not necessarily fond of the fact that they were using macroeconomic models. Sargent and Wallace (1975, p. ) So it is clear that there is nothing about the incorporation of rational expectations or the policy ineffectiveness results that mandates the use of a representative agent model.
In every case, the variables that Lucas argues will change with regime are those relating to expectations. Furthermore, in every case, taste and technology parameters are held as constants. 38 BEYOND TASTE AND TECHNOLOGY PARAMETERS Consider each model in turn. In the consumption model, the parameter Lucas argues is variable is a weighting term on income. Changes in this parameter indicate changing perceptions about the amount of current income that is permanent versus that which is transitory. Thus, policies that change an agent’s future income will alter his expectations of what percentage of his future income is permanent.
As Lucas’ definition of θ offers little indication as to his meaning, we must seek other avenues of inquiry. Fortunately, one is at hand. In his paper, Lucas gives three examples of his point about regime changes. By closely inspecting each of these examples to see which parameters Lucas argued were subject to alteration with regime and which were held constant, we gain an insight into his meaning. This inspection is certainly not an attempt to glean facts from air; presumably, the purpose of Lucas’ examples was to aid others in understanding what he meant.