The empirical findings of macroeconomics in 3 sentences, plus one from McCloskey

From “Real Business Cycle Models: Past, Present, and Future,” by Sergio Rebelo, March 2005:

“Macroeconomists know their main findings by heart.

–          Investment is about three times more volatile than output, and nondurables consumption is less volatile than output.

–          Total hours worked and output have similar volatility. Almost all macroeconomic variables are strongly procyclical, i.e. they show a strong contemporaneous correlation with output.

–          Finally, macroeconomic variables show substantial persistence. If output is high relative to trend in this quarter, it is likely to continue above trend in the next quarter.”

This isn’t much.  The first is just plain Keynesian “animal spirits” and the fact that investment is a minor part of output.   As to nondurables consumption, this probably results from consumption of  “basic needs” even as income fluctuates. The second finding reflects the slow effect of technological change.  The third reflects transactions costs (if you work today, you don’t resign tomorrow, thinking you can get another job the day after).

I could add to the third that the average wage and price levels also show persistence, again because of transaction (and menu) costs.

I’m also tempted to add a finding attributable to Deirdre McCloskey that the largest determinant of output is war and peace, which makes Tolstoy an eminent macroeconomist.  This makes sense because national defense is a public good, and Keynesian economics works when government spends on such goods.  If all that government did was take from Peter and give to Paul, well, Krugman would be wealthy but the economy would tank.


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