Jump to ContentJump to Main Navigation
Stability with GrowthMacroeconomics, Liberalization and Development$
Users without a subscription are not able to see the full content.

Joseph Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar

Print publication date: 2006

Print ISBN-13: 9780199288144

Published to Oxford Scholarship Online: September 2006

DOI: 10.1093/0199288143.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see http://www.oxfordscholarship.com/page/privacy-policy).date: 18 August 2018

Formal Approaches

Formal Approaches

Chapter:
(p.150) 9 Formal Approaches
Source:
Stability with Growth
Author(s):

Joseph E. Stiglitz (Contributor Webpage)

José Antonio Ocampo (Contributor Webpage)

Shari Spiegel

Ricardo Ffrench-Davis (Contributor Webpage)

Deepak Nayyar

Publisher:
Oxford University Press
DOI:10.1093/0199288143.003.0009

This chapter discusses advances in formal economic theory by examining how different positions among economists arise from their different assumptions and models. The discussion focuses on ways in which real world economies differ from the ‘competitive equilibrium’ model that has become the benchmark model. The current benchmark competitive equilibrium framework includes new classical, representative agent, and real business cycle models which assume that all markets (including the labor market) have clear, perfect information, complete markets (including perfect capital and insurance markets), perfect wage and price flexibility, perfect competition, perfect rationality, and no externalities. If these models accurately portrayed reality, the economy would be efficient and there would be no need for government intervention. The assumptions of these models, however, are unrealistic and it is difficult to reconcile the required macro-formulations with what is known about microeconomic behavior (without resorting to ad hoc assumptions about the nature of the stochastic shocks to preferences and technology). The inadequacies of these models are even greater for developing countries where information imperfections are more pervasive and more markets are missing or incomplete (e.g., insurance markets). Accordingly, economic research since the 1990s has focused on identifying the most important limitations of the standard competitive model, particularly those limitations that help to explain the nature of economic volatility.

Keywords:   competitive equilibrium model, new classical model, representative agent model, real business cycle model, wage rigidities, price rigidities, incomplete futures markets, incomplete capital markets, incomplete financial markets, incomplete contracts

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .