Presidential address for the Twelfth World Congress of the International Economic Association, summarising semi-formally the author's recent work and concerns. Uncertainty and incomplete markets breed demand volatility as well as price and wage rigidities. The conjunction of these leads to multiple, volatile supply-constrained equilibria, typically reflecting coordination failures and apt to display persistence- as documented by three supporting theorems. Specific implications are linked to the conclusions that we should take coordination failures seriously, try to obviate demand volatility and try to bypass price and wage rigidities.

The theory of capital investment is the cornerstone of the theory of macroeconomic dynamics, and the question of whether or not the agents involved in the investment decision have the information needed to make individually and collectively optimal choices is central to capital accumulation theory. New Classical and neoclassical theory assume that they do. Keynesian and Post Keynesian theory assume that they do not. The outcome of many significant debates in macrotheory depends on which theory is correct about this. In section 1 of this essay I argue that the Keynesians are right about the information question and that once Keynes’s views are accepted, neoclassical theory has little to tell us about how to theorize agent choice. We are then confronted with the question: Are a coherent theory of agent choice and a coherent theory of the macroeconomy possible in the seemingly chaotic world of Keynesian uncertainty? And, if they are, how do we construct these theories? Alternatively, was Lucas correct when he pronounced that “in cases of uncertainty, economic reasoning will be of no value ” (1981, p. 224)? Is it true that Keynesian uncertainty is “analytically nihilistic...[creating an] all- embracing subjectivism ” (Coddington 1983, p. 61)? The main thesis of this paper is that economists can indeed construct, coherent theories of agent choice and macrodynamics in a Keynesian world as long as they are willing to add new research methods to their analytical tool kit. Section 2 shows why decision making under uncertainty exhibits what I call “conditional stability, ” a situation in which behavioral equations will be relatively stable under conditions that hold most of the time. Section 3 then briefly discusses the centrality of institutions to the creation of conditional macroeconomic coherence; however, these sections also argue that both the micro- and macrofoundations of coherence are contradictory in that they create the potential for outbursts of instability even as they help stabilize the economy. Section 4 reiterates the conclusions of the paper.

We discuss contract theory from a combined Austrian/new institutional view. In the latter view, the world is seen as shot through with ignorance and transaction costs, but, as a tendency, entrepreneurial activity responds to the problems caused by these. All modeling must critically reflect this. This ontological commitment is contrasted to various isolations characteristic of contract theory, specifically the modeling strategy of introducing often ad hoc and unexplained constraints that suppress margins and possibilities of entrepreneurial actions that would be open to real-world decision-makers. We illustrate this by means of, for example, the treatment of asymmetric information under complete contracting and the notion of control rights under incomplete contracting.

Keynes’mainconcernintheGeneral Theory is about the capacity of an economy to return to full employment equilibrium when subject to (negative) demand shocks. He maintains that money wages cuts do not necessarily imply a fall in real wages and hence are not necessarily a cause of persistent unemployment. On the contrary, their rigidity may be considered as a necessary condition for avoiding that a cumulative process propels the economy far away the full employment equilibrium. Keynes ’ intuition is dynamic in nature, but as he builds on a static equilibrium framework, he has to rely on distortions in the price mechanism hard to defend when considering the long run. This paper represents an attempt to focus on the problems of intertemporal coordination posed by a sequential economy. Our analysis of the out-ofequilibrium process of adjustment allows to generalize the original Keynesian intuition. It shows in fact that unemployment emerges as the result of a lack of coordination due to irreversibly constrained choices; and that real or nominal wage flexibility does not necessarily help to restore equilibrium. As a matter of fact, it may even be harmful, by triggering processes that make the economy diverge from equilibrium. The analysis carried out has important analytical implications as regards the role of market imperfections and the interpretation of the effects of monetary policy.

This paper argues that Blinder undertakes a questionnaire study to investigate the reasons why prices are sticky. In order to do this he assesses the relevance of various neoclassical theories to the thinking of business executives. We argue that in spite of his intentions Blinder's interpretation of his results is methodologically flawed and that the inductive findings of the research support post Keynesian pricing theory. Having 24

The effect of demand shocks is studied within an economy characterized by a temporally articulated production structure, and populated by boundedly rational agents. Hicks' (1973) model is extended in order to include trade between two economies with demand links. This allows to tackle issues as the transmission of shocks and the coordination of monetary policies between countries. By means of numerical simulations, I show that temporary demand shocks trigger disequilibrium dynamics that have permanent effects on the economy. The reason has to be found in the irreversibility that characterizes the technological structure and the decision process. Furthermore, market imperfections, namely a certain degree of wage and price stickiness, prove necessary to avoid the implosion of the system. An accommodating monetary policy, by softening financial constraints, is effective in stabilizing the economy. Finally, when considering trading economies, a certain degree of openness has positive effects, and independent monetary policies may in some occasions be desirable.

: Agent-based computational economics (ACE) is roughly defined as the computational study of economies modelled as evolving decentralized systems of autonomous interacting agents. A key focus of ACE research is understanding how global regularities arise from the bottom up, through the repeated local interactions of autonomous agents channeled through socio-economic institutions, rather than from top down coordination mechanisms such as imposed market clearing constraints or an assumption of single representative agents. This paper discusses how ACE materials have been introduced into graduate-level courses in macroeconomic theory over the past several years, using an ACE labor market framework for concrete illustration. 1 Introduction The newly developing field of agent-based computational economics (ACE) is roughly defined by its practioners as the computational study of economies modelled as evolving decentralized systems of autonomous interacting agents. A principal concern of ACE...

1 The author thanks Jean-Jacques Herings and David de la Croix for stim-ulating discussions on the contents of this paper. 1 Introduction and Preview Macroeconomic theory is seen nowadays as a study in “dynamic general equilibrium theory under uncertainty, with incomplete (and possibly imperfect) markets”. 1 The general equilibrium theory initiated by Walras (1902) and often referred to as “the Arrow-Debreu (1954) model ” has

Mr. Keynes's aggregates conceal the most fundamental mechanisms of change. (Hayek, 1931)

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