Hahn's Theoretical Viewpoint on Unemployment
A Comment
Bibliographic Data
| ID | 9723472 |
|---|---|
| Authors | Bennett T McCallum (0000-0002-7269-3008, corresponding author) |
| Year | 1980 |
| Volume | 47 |
| Issue | 187 |
| Pages | 299 |
| Publication date | 1980-08-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2553152 |
| OpenAlex | W2003998489 |
| Language | EN |
| References cited | 6 |
The object of Professor Hahn's paper (1980) is to summarize his own theoretical case for the view that government should and [can] have a designed to reduce the average level of (p. 285). The first major section accordingly argues that there may exist rational expectations equilibria in which agents are (p. 289). This argument relies heavily on the concept of a conjectural equilibrium, in which quantity constraints may be binding and yet there is no impetus for agents to try to escape these constraints by offering to sell (or buy) at prices different from those prevailing. Thus prices are endogenous, so Hahn's analysis is not open to the objection that can be raised to the approach of Malinvaud (1977), in which quantity constraints result precisely because of arbitrarily fixed prices. The equilibrium approach would therefore seem to be of considerable importance-both for that reason and also because it is a long-run approach in the following sense. In a equilibrium there may be no tendency for prices to change over time (from period to period) if exogenous variables are unchanging. Consequently, since Hahn (1978) has shown that quantity-constrained equilibria exist in certain models, he is able to argue that involuntary may not be automatically eliminated by the passage of time. Indeed, his argument attempts to provide a rigorous theoretical justification for the most archetypical of all Keynesian notions, that of an unemployment equilibrium. But, as Hahn has himself emphasized (1977a, 1978), conjecture functions can in general be quite arbitrary. A crucial theoretical issue, therefore, is whether constrained equilibria exist for rational conjectures-i.e. for conjecture functions that are in some sense correct or consistent with the remainder of the modelled economy. This is important because incorrect conjecture functions will presumably fail to be invariant to interventions, and will accordinglyas emphasized by Lucas (1976) and Lucas and Sargent (1979)-invalidate the model's predictions. But Hahn's papers to date on the subject of rationality seem to have yielded rather negative results (see Hahn, 1977a, b; 1978). So at present it evidently remains an open issue, whether the planned rescue of the Keynesian equilibrium can be successfully completed. The second part of Hahn's paper (1980, pp. 289-294), which is more directly concerned with policy, begins with a discussion that seems intended to discredit the rational expectations policy ineffectiveness proposition developed by Lucas (1972), Sargent (1973), and Sargent and Wallace (1975).l It does so by suggesting that the proposition is applicable only to Walrasian economies and then arguing that, in such economies, it would be pointless to use activist policies even if they were feasible. (A Walrasian economy is defined as one in which all agents are price-takers and prices are fully adjustable within each period.) Now, there is admittedly some merit to this point, but it seems to hit targets other than
Argument (complex analysis) · Conjecture · Economics · Keynesian economics · Macroeconomics · Mathematical economics · Neoclassical economics · Object (grammar) · Rational expectations · Section (typography) · Unemployment · Computer Science · Economic theories and models · Economic Theory and Policy · Mathematics · Monetary Policy and Economic Impact
| Citation velocity | historical |
|---|---|
| Highly cited | No |