🚀 go-pugleaf

Excerpts from netnews.sci.econ: 10-Jan-93 Re: Inflation by David Michael
Wright@cat 
> I really don't understand the problem here. Take an economy driven by
> rational expectations with a given random distribution with known
> varience and mean:--a common assumption. Now, on average, people will
> make the correct amount of investment and consumption, that is, the
> plans of all agents will be consistent. But, in any given period, it
> will not be the case, there will be an error. If we make the frequency
> of this variable fairly long, then we get flucuations in output that
> corrospond to Keynesian business cycles, to some degree, and you have
> the same "type" of uncertainity that Lucas and conventional economists
> use to model the economy. I see no real problem. Now, there might be a
> problem with policy implementation: why would the government err less
> than the private agents? And so policy may be impotent as the New
> Classical might suggest, but we can always assume assymetric
> information if need be. 

(harkening back to grad school macro)
Even though stochastic shocks to "the production function", with some
serial correlation, will give you cyclical fluctuations in output, this
does not quite give you the corresponding variations in employment. 
After all, if the only problem were changes in output, a developed
industrial economy could probably live with it.  To generate output
fluctuations, one needs more, and from what I can remember of the
Prescott and X papers, the something more that is typically provided is
less than convincing.  

cheers