Crisis and theoretical methods: equilibrium and disequilibrium once again
Duncan Foley ()
No 1703, Working Papers from New School for Social Research, Department of Economics
The financial crisis of 2007-8 damaged the credibility of macroeconomic analysis based on price-taking Walrasian intertemporal general equilibrium models. This talk explores methodological alternatives, particularly stable Nash-Cournot equilibria of social interaction models that center on agents’ response to other agents’ actions rather than on agents’ forecasts of future paths of prices and production. Social interaction equilibria in conjunction with constraints from information theory highlight the social coordination problems at the root of macroeconomic policy questions. Equilibrium concepts enhance the explanatory power of economic theories in contrast with the limitations of disequilibrium dynamical systems analysis and agent-based modeling. Constrained maximum entropy methods offer a general approach to macroeconomic modeling. Various conceptions of equilibrium in economics arise from distinct conceptions of expectations.
Keywords: Economic equilibrium; statistical equilibrium; Nash-Cournot equilibrium; expectations; maximum entropy (search for similar items in EconPapers)
JEL-codes: B22 B40 C62 C72 D50 E12 (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-hme, nep-hpe and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1703
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