December 6 - Post Walrasian Macroeconomics
From its origins, classical macroeconomic theory has rested heavily on Walrasian foundations—markets clearing through price adjustments and equilibrium emerging across interlinked markets. Post‑Walrasian Macroeconomics, however, represents a response to and departure from that orthodoxy, particularly the Dynamic Stochastic General Equilibrium (DSGE) model that came to dominate macroeconomic discourse at the end of the 20th century. Instead, it seeks to craft a richer, more nuanced understanding of real economies—one that embraces complexity, institutions, evolving expectations, and computational methods beyond the neat, equilibrium‑focused paradigm.
In David Colander’s influential volume Post‑Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, the emerging Post‑Walrasian research orientation is described as an antithesis to the Walrasian DSGE system. This sits at the intersection of complexity theory, agent‑based models, automated econometric modeling, and nonlinear statistical dynamics—a shift prompted in part by growing computational capabilities and critiques of strict rational‑expectations equilibria.
A central tenet of Post‑Walrasian Macroeconomics is the primacy of institutions over the idealized assumptions of price and wage flexibility. From this vantage, economic outcomes—including unemployment—are not easily resolved by assuming frictionless price adjustments. Instead, institutions themselves determine the degree and nature of price and wage rigidity. Attempts to cure unemployment through mere flexibility may demand institutional breakdowns not present in reality.
Equally important is the focus on coordination—a variable often omitted in standard models. Colander argues that economies embody large doses of implicit coordination among agents; for example, low demand expectations can become self‑fulfilling, triggering lower output as producers, anticipating weak sale volumes, scale back production, thereby cementing the initial expectation. In the Post‑Walrasian worldview, these coordination failures are structural, evolved from institutional and behavioral dynamics—not abstract, frictionless markets.
The Post‑Walrasian approach also embraces agent‑based computational modeling as a tool not just for stylized illustration but for fundamental understanding of emergent macroeconomic phenomena. Such models allow heterogeneous, bounded‑rational agents to interact dynamically, generating patterns—such as cycles, tipping points, and path dependency—that DSGE frameworks struggle to represent. Moreover, Post‑Walrasian Macroeconomics seeks to let the data guide theory. Instead of pre‑packaged, closed-form equilibrium models, it emphasizes empirical realism and adapts its structures based on observed behavior—even if that means rejecting elegance for explanatory power
At its heart, the key message of Post‑Walrasian Macroeconomics is that real economies are complex, institutionally grounded, often out of equilibrium, and driven by coordination dynamics that cannot be fully captured by assuming representative agents, perfect foresight, or markets clearing instantly. It represents a deliberate move away from equilibrium-centric thinking toward a worldview that acknowledges evolving structures, learning, uncertainty, and computational richness.
By situating macroeconomics within complexity and institutional complexity, Post‑Walrasian theory invites us to reconsider economic policy. One cannot assume outcomes consistent with DSGE models; policy must account for coordination problems, institutional inertia, expectations, and rich micro‑level interactions that ripple through the system in unpredictable ways.
Sources:
Post Walrasian Macroeconomics Beyond the Dynamic Stochastic General Equilibrium Model, David Colander (2006).
Post Walrasian Macroeconomics and IS/LM Analysis, David Colander
Beyond New Keynesian Economics: Towards a Post Walrasian Macroeconomics, David Colander
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Prompt: “Hi, can you write a 600 word essay on "Post-Walrasian Macroeconomics", its main tenets and key message. You can site sources (with links please). You should avoid bullet points. Write a clean free-flowing essay.”