Macroeconomics of Self-Fulfilling Prophecies

By Roger E.A. Farmer

For many years it was fashionable to treat macroeconomics and microeconomics as separate subjects without looking too deeply at the relationship between the two. But in the 1970s there occurred an episode of high inflation and high unemployment, which was inconsistent with orthodox theory. As a result, macroeconomists began to pay much greater attention to the microfoundations of their subject.

In this book Roger E. A. Farmer takes a somewhat controversial point of view, arguing for the future of macroeconomics as a branch of applied general equilibrium theory. His main theme is that macroeconomics is best viewed as the study of equilibrium environments in which the welfare theorems break down. This approach makes it possible to discuss the role of government policies in a context in which policy may serve some purpose.

Since the publication of the first edition in 1993, self-fulfilling prophecies has become a major competitor to the real business-cycle view of economic fluctuations. The second edition has been updated in three ways: (1) problems are included at the end of every chapter, and a study guide containing sample answers to all of the problems is available; (2) a new chapter discusses research from the past five years on business fluctuations in multisector models; and (3) the chapter on representative agent growth models now includes an appendix that explains the transversality condition.

• Format: Hardcover
• Language: English
• ISBN: 0262062038
• ISBN13: 9780262062039
• Release Date: June 1999
• Publisher: Mit Press
• Length: 318 Pages
• Weight: 1.30 lbs.
• Dimensions: 1.0" x 6.3" x 9.3"
• Age Range: 18 years and up
• Grade Range: Postsecondary and higher

Customer Reviews

A recommended textbook for first-year graduate students

Though the name is "self-fulfilling prophecies", but I regard it as a standard advanced textbook for macroeconomics.It introduced the basic technique and standard approach in modern macroeconomics, including linear difference equations, intertemporal optimization, representative agents and OG models, competitive equilibrium and welfare theorem, standard models of money (CIA and money in utility function), etc. It is good to think macroeconomics as a branch of applied general equilibrium.It also includes some frontiers of research like RBC and calibration, increasing returns, multi-sector models, etc.As it's name suggests, it tells much on multiple equilibria and sunspots, it maybe an alternative approach to explain the real phenomena.The most important, all these materials are introduced in a moderate level. The mathematics used is more acceptable to the first-year graduate students in economics compare to some other texts.Since it emphasizes on fluctuations, it lacks of some important topics like unemployment, labor market, incomplete and imperfect market, fiscal policy, policy-making, and little on endogenous growth. But it is not so bad, this keeps the text short and more friendly. Not a book can include all the important topics in the subject. The basic has been told, and all the others could upon to others.So it is suitable for first-year graduate students in economics and is better to be used together with Blanchard & Fisher's "Lectures on macroeconomcs".