There's still no information on the monetary base drift rate, but basically on the same track:
I think we're seeing the "natural" drift rate per this post.
Wow; this may be the mechanism behind markets. D (detective) is the price, R (real data) is demand, and G (generator) is supply. https://t.co/PXr9XtgRT9— Jason Smith (@infotranecon) February 17, 2017
Not bad. The left tail is a bit longer than the right, but the skew and kurtosis are, shall we say, evocative of the original Gaussian.
Consider the macroeconomist. She constructs a rigorously micro-founded model, grounded purely in representative agents solving intertemporal dynamic optimization problems in a context of strict rational expectations. Then, in a dazzling display of mathematical sophistication, theoretical acuity, and showmanship (some things never change), she derives results and policy implications that are exactly what the IS-LM model has been telling us all along. Crowd -- such as it is -- goes wild.
This illustrates a positive relationship between inflation and output - a classic Phillips curve relationship. The intuition is straightforward: as inflation increases, real wages decrease (as wages are rigid) and hence the firms hire more labor. Note that the degree of rigidity is indexed by the parameter γ. As γ gets closer to 1, the Phillips curve gets flatter ...
An equilibrium is now defined as set of stochastic processes ...
But I doubt the Post-Keynesians will ever create their own thriving academic research program, and will keep on influencing the world mainly through pop writing and polemics. I think they like it that way.
An Euler equation is a mathematical relationship between observables - interest rates, consumption, and so on.
There are actually infinite Euler equations, because the equation depends on your assumption about the utility function.
The problem is that standard utility functions don't seem to work. Now, you can always make up a new utility function that makes the Euler equation work when you plug in the observed consumption and interest rate data. Some people call this "utility mining" or "preference mining". One example of this is Epstein-Zin preferences, which have become popular in recent years.
The problem with doing this is that those same preferences might not work in other models. And letting preferences change from model to model is overfitting. So another alternative is to change the constraints - add liquidity constraints, for example. So far, there's lots of empirical evidence that liquidity constraints matter, but very few macro models include them yet.
Another, even more radical alternative is to change the assumptions about how agents maximize. This is what Gabaix does, for example, in a recent paper [linked above] ...
In the Euler equation consumers do not appear to be fully forward looking: M < 1. The literature on the forward guidance puzzle concludes, plausibly I think, that M < 1.
But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.
|Nominal growth rate from the Solow model. Result is in the code repository linked below.|
|Figure from Classical Econophysics|
The reason we can be a bit more optimistic [about understanding the economy] is that some very simple and elegant models of capitalist macrodynamics exist that do a surprisingly effective job of replicating empirical data. ... I co-authored a book, in 2009, that combined the classical approach to political economy (e.g., Smith, Ricardo, Marx) with the concept of statistical equilibrium more usually found in thermodynamics. A statistical equilibrium, in contrast to a deterministic equilibrium that is normally employed in economic models, is ceaselessly turbulent and changing, yet the distribution of properties over the parts of the system is constant. It’s a much better conceptual approach to modelling a system with a huge number of degrees-of-freedom, like an economy.