Instead of blaming recessions on slowly adjusting wages and a single 'labor market,' Peter Howitt (after Clower and Leijonhufvud) models economies as many interlinked markets where trading happens out of equilibrium and expectations must coordinate across time. Busts emerge when coordination breaks down, not because prices are sticky in one representative‑agent world. This view fits episodes like the deflationary 1930s better than wage‑stickiness stories and asks for models that track multi‑market search, rationing, and networked spillovers.
— It redirects policy and modeling away from sticky‑price fixes toward restoring coordination and expectations across numerous markets during crises.
Tyler Cowen
2026.03.03
72% relevant
The paper’s result — that long‑horizon forecasts are well calibrated and that large persistent shocks appear limited — connects to the broader argument that macro instability often reflects coordination problems rather than large, persistent exogenous shocks. Lunsford & West’s empirical finding provides quantitative backing for the view that long‑run macro outcomes are less shock‑driven and more about structural/coordination dynamics.
Arnold Kling
2025.10.17
100% relevant
Kling’s summary of Howitt and Hendrickson: Great Depression deflation undercuts sticky‑wage stories; advocacy for multi‑market, out‑of‑equilibrium trading models; critique of representative‑agent macro’s 'lamp‑post' tractability.
← Back to All Ideas