Peter,
[email seems to be really functional again]
In my JPKE article I assumed floating rates
with PPP as part of the effort to get a vertical AD.
Of course, there are lots of ways the open economy
affects the domestic economy. However, a lot of
those can be seen as operating through shifts of
AS or AD.
Frankly I don't see what is so bad about using
AS/AD? Michael P. seems to think there is a necessary
ideological bottom line that AS/AD generates. It
certainly does if you assume certain things about it,
such as AS must be vertical, even in the short run.
But, why does a more general AS/AD analysis produce
a particular ideological outcome?
Again, Peter, you are criticizing the model in terms
of an outcome based on an inflation equilibrium. So,
how does one do that? Do you want to get into a big
to do when you are introducing the whole business about
expected versus non-expected inflation?
Barkley Rosser
-----Original Message-----
From: Peter Dorman <[EMAIL PROTECTED]>
To: [EMAIL PROTECTED] <[EMAIL PROTECTED]>
Date: Monday, August 28, 2000 4:08 PM
Subject: [PEN-L:892] Re: Re: Re: Re: intro macro text
>Barkley and I debated AS/AD back in 1994 (I think) on pen-l. I recently
reread
>my side of the exchange, and I stay convinced. I agree that Keynes has
>something like an upward-sloping AS curve, in the sense that he recognizes
(as
>we all should) that, beyond a certain point, nominal expansion can't be
real.
>Whether capacity constraints are responsible for particular real-world
inflation
>episodes is another question altogether, however. Also, international
>substitution (which I criticized as a justification for AD back then) is
not the
>only, nor even the most significant open economy effect on domestic macro
>outcomes. (Recall that international substitution requires that exchange
rates
>not offset movements in the price level.)
>
>Peter
>
>"J. Barkley Rosser, Jr." wrote:
>
>> Peter,
>> Two points: I. AS and AD are not about inflation.
>> The vertical axis is the price level, not the rate of inflation.
>> 2. There is no reason why it should deal only with a closed
>> economy. Indeed, the international substitution effect is
>> one of the standard textbook reasons for why AD slopes
>> down, as I already mentioned.
>> Are there lots of problems with AS and AD? Yes.
>> Is the analysis still useful, if properly done? I think so.
>> Of course, one must make clear that AS and AD are
>> very different from their micro equivalents, which also
>> have problems, btw.
>> I don't see it as at all unrealistic to claim that prices
>> can (and do) change more rapidly than wages, even if
>> "in the long run" wages will eventually catch up.
>> BTW, a not widely known fact is that one can find
>> the standard "short run" AS curve with the flat zone
>> followed by the upward sloping intermediate zone followed
>> by the vertical zone, using the bottleneck argument, in
>> the General Theory itself. See Chapter 21, Section IV.
>> It is a bummer what Colander has done to his book,
>> in the meantime. Good luck finding a decent text.....
>> Barkley Rosser
>
>
