While these restrictions are supported by standard macroeconomic theory
and commonly used, their use may create problems when making inferences about the infinite horizon.
It is the achievement of New Keynesian macroeconomic theory
and the great moderation to understand that this is the job of monetary policy.
First, our coverage of macroeconomic theory
is typically based on microeconomic foundations.
Meanwhile, the behavior of the actual economy has deviated far from the pillars of macroeconomic theory
Probably the most important difference between the theory embedded in the MPS model and that espoused by one of the more popular schools of macroeconomic theory
since the 1970s is in the modeling of expectations formation.
Later, the emergence of growth theory, with the work of Solow in particular, resulted in a macroeconomic theory
of the long run.
Basic macroeconomic theory
stipulates that the gap between the investment ratio (the share of investments in the GDP) and the domestic savings ratio equals the current account balance.
The status and relevance of mainstream macroeconomic theory
have been subjected to increased scrutiny in the shadow of the 2008-9 'Global Economic Recession' [GER].
The Keynesian Revolution, and therefore the origins of virtually all macroeconomic theory
today, can only be understood in relation to Keynes' coming across Malthus' economic writings in 1932.
Turkey) seeks to bring the theory of new institutional economics (as established by Ronald Coase and further developed by Oliver Williamson and Douglass North) back into the discussion of the macroeconomic theory
of development economics.
Economists generally agree that an important feature of any modern macroeconomic theory
is an explicit aggregation of the microeconomic behavior of all agents in the economy.
In Section V, we discuss the implications of our analysis for modern macroeconomic theory