Money, Banks and Finance in Economic Thought

When Theory Comes to the Rescue of the Macroeconometric Models: Edmond Malinvaud’s View on Microfoundations

Renault Matthieu, University of São Paulo (FEA-USP)

In recent years, research in the history of macroeconomics has increasingly paid attention to the search for microfoundations from the early 1970s. Among other points, this historical reassessment has pointed out that alternative approaches of microfoundations coexisted with the one endorsed by the New Classical Economics. In particular, Hoover (2012) shed light on two alternative microfoundational programs, namely the “Aggregation Program” and the “General-Equilibrium program”. The first program, in line with the macroeconometric modeling and embodied by Lawrence Klein, argued that individuals should be replaced by aggregates for the purposes of econometric modeling. Yet, this approach did not take aggregates uncritically and promoted a step-by-step disaggregation of macroeconometric models following a top-down and very empirical approach. The second microfoundational program based on Hicks’ (1939) method consisted of constructing a Walrasian macro-model that incorporated elements of imperfect coordination (such as expectations, incomplete markets, and various adjustment processes). This approach gave rise to the disequilibrium models that were developed in the wake of Barro and Grossman (1971). In that context, studying Edmond Malinvaud’s views on microfoundations is not only relevant because he committed to the second microfoundational program, namely the disequilibrium theory. This study is also because his views on microfoundations came along with methodological considerations on macroeconomics, justifying by and large why he opposed the New Classical Economics’ microfoundational program. Furthermore, this paper enriches Hoover’s (2012) classification by showing that the “General-Equilibrium Program” and the “Aggregation Program” were not incompatible with one another. Indeed, Malinvaud’s ultimate goal in taking part in the search for microfoundations was working out alternative specifications based on the disequilibrium theory in order to improve the performances of the macroeconometric models in France.

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Keywords: History of macroeconomics; microfoundations; Edmond Malinvaud; economic methodology

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