Sunday, September 25, 2016

SWL goes back to our RBCs

" The basic RBC model contains a production function relating output to capital (owned by individuals) and labour plus a stochastic element representing technical progress, an identity relating investment and capital, a national income identity giving output as the sum of consumption and investment, marginal productivity conditions (from profit maximisation by perfectly competitive representative firms) giving the real wage and real interest rate, and the representative consumer’s optimisation problem for consumption, labour supply and capital.

"microfoundations methodology has to be central to any critique of modern macro. "