Bird's Eye View of My Scientific Work

  1. I began the movement to formulate the supply block of macroeconomic models fundamentally differently: First, to express the choice problem of suppliers of labor and of goods in terms of their expectations of wages and prices "elsewhere"; the analysis led to the notion of the "equilibrium" level or path of employment in the correct-expectations sense of Marshall, Hayek and Myrdal--and of "disequilibrium." Second, to argue that the hazard of employee quitting ensures disequilibrium (each firm's wage exceeding the expected norm) at too low an unemployment rate, so equilibrium requires high enough unemployment--an equilibrium without market clearing.
  2. In what became known as the 'island parable' of search unemployment, I further pointed out that models can be constructed in which, because of similar imperfections in the flows of information, there can be both labor-market equilibrium and disequilibrium with market-clearing wage rates (so the unemployment is voluntary):

  3. The next contribution was the project at Columbia to elaborate nonsynchronous models of wage-setting and price- setting, most of this in collaboration with Calvo and Taylor. These models were the first wave of what Parkin dubbed the New Keynesian school-models in which, even if the macro shock is commonly observed, the general price or wage level does not jump to the final-adjustment level because firms' have overlapping, or staggered, price or wage commitments.
  4. The latest effort has been to complete the structuralist "model" of unemployment determination, emerging over the last decade, in which the equilibrium unemployment-rate path is constantly approaching a steady rate that is a moving target--a variable natural rate adjusting to the evolution of the economy's state variables and shifting with shifts in some parameters. (The parameter shifts first emphasized were foreign oil shocks and shifts in unemployment compensation; state variables include the capital stock and the fraction of workers who are currently insiders.) My contribution in a series of models has been to introduce real assets to obtain an intertemporal general-equilibrium framework. That framework determines the effects on the equilibrium employment path of: real demands as well as "supply shocks"; capital stock and oil; the level and rate of progress of the technology; tax structure and tariffs; overseas real interest and real exchange rates.
  5. Most of the modeling of the labor market derives from my 1968 formulation. This work is synthesized and extended in my Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets.

  6. Among the other contributions, one has been to try to extract from optimal tax theory some implications of policy relevance: an exploration of the implications of tax-revenue maximization, and the translation of optimal taxation to the area of optimal inflation.
  7. Contributions to the theory of economic growth, especially the effects of the division of society's saving between investment in tangible capital, investment in education, and investment in technology, and also the welfare economics of optimum national saving:
  8. The little time for research in the early 1980s was directed toward a theory of expectations and consequent macroeconomic behavior. The basic point was that rational expectations. though there may often be a pragmatic justification for adopting it, does not generally have an epistemological basis. If expectations are rational according to A's model, they cannot be rational in B's contrary model. Owing to the pluralism of models, I argued, it is more plausible to hypothesize that each agent's expectations are "model-theoretic" but consider that other agents' expectations are based on their own models. A number of operational consequences of this state of affairs have been studied.

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