There are more than a few of us in my generation of international economists who still bear the scars of not being able to publish sticky-price papers during the years of new neoclassical repression. I still remember a mid-1980s breakfast with a talented young macroeconomic theorist from Barcelona, who was of the Chicago-Minnesota school. He was a firm believer in the flexible-price Lucas islands model, and spent much of the meal ranting and raving about the inadequacies of the Dornbusch model: "What garbage! Who still writes down models with sticky prices and wages! There are no microfoundations. Why do international economists think that such a model could have any practical relevance? It's just ridiculous!" Eventually the conversation turns and I ask, "So, how are you doing in recruiting? Your university has made a lot of changes." The theorist responds without hesitation: "Oh, it's very hard for Spanish universities to recruit from the rest of the world right now. With the recent depreciation of the exchange rate, our salaries (which remained fixed in nominal terms) have become totally uncompetitive." Such was life.The anecdote was presented at an IMF research conference lecture about the influence and brilliance of Dornbusch's overshooting model, which is based precisely on sticky prices. You can read the full lecture here.
Wednesday, June 30, 2010
Such was life
Here's a funny anecdote from the economist Kenneth Rogoff about the intellectual climate of the 80s. If there's anything I love, it's irony: