Markets, Productivity, and Happiness in a Historical Perspective

What do we teach in macroeconomics? Evidence of a theoretical divide

de Vroey Michel, Université catholique de Louvain
Courtoy Francois, UCLouvain
Turati Riccardo, UAB

Many economics students have experienced the discrepancy existing in the way in which macroeconomics is taught at the undergraduate and graduate levels. In our paper we pursue a twofold aim. The first is theoretical, the second empirical. In the theoretical part of the paper, we construct a taxonomy allowing a comparison between the baselines models of the IS-LM/AS-AD and of Dynamic general equilibrium (DSGE) modeling strategies. Four basic methodological nodes are used for this comparison: (a) the specific equilibrium concept adopted in the two baseline models (static/state of rest equilibrium or dynamic equilibrium à la Arrow-Debreu); (b) whether they assume ‘implicit’ (i.e., like Marshall) or ‘explicit’ (i.e., like Walras) microfoundations; (c) whether they comprise a labor market; and (d) whether they assume adaptive or rational expectations. The empirical part of the paper is based on two data sets, the WorldCat data base, and an original survey of the textbooks used for teaching at leading universities across the world, the paper provides an up-to-date description of macroeconomics teaching. Our results confirm the undergraduate/graduate teaching-discrepancy claim. Most of the undergraduate textbooks are based on the IS-LM/AS-AD apparatus. Only few of them – Barro’s, Williamson’s and Chugh’s – are grounded on the RBC methodological principles.

Area:

Keywords: IS-LM/AS-AD; RBC; textbooks