Macroeconomic ad hocery
from Lars Syll
Robert Lucas is well-known for condemning everything that isn’t microfounded rational expectations macroeconomics as “ad hoc” theorizing.
But instead of rather unsubstantiated recapitulations, it would be refreshing and helpful if the Chicago übereconomist — for a change — endeavoured to clarify just what he means by “ad hoc.”
The standard meaning — OED — of the term is “for this particular purpose.” But in the hands of New Classical–Real Business Cycles–New Keynesians it seems to be used more to convey the view that modeling with realist and relevant assumptions is somehow equivalent to basing models on “specifics” rather than the “fundamentals” of individual intertemporal optimization and rational expectations.
This is of course pure nonsense, simply because there is no — as yours truly has argued at length e. g. here — macro behaviour that consistently follows from the NC–RBC–NK microfoundations. The only ones that succumb to ad hoc assumptions here are macroeconomists like Lucas et consortes, who believe that macroeconomic behaviour can be adequately analyzed with a fictitious rational-expectations-optimizing-robot-imitation-representative-agent.
And don’t get me wrong on this. I like good fiction. But that doesn’t include New Classical–Real Business Cycles–New Keynesian fiction. That’s just bad fiction.