I will here focus only on the latter. Participants included Nobel Prize Laureates and central figures of the Real Business Cycle (RBC) macroeconomics: Edward C. Prescott (Arizona State University), Finn Kydland (University of California-Santa Barbara), John B. Long (University of Rochester), Charles Plosser (Federal Reserve Bank of Philadelphia), Gary D. Hansen (University of California-Los Angeles), Thomas Cooley (New York University).
Edward Prescott started by stating that the Real Business Cycle movement was a revolution (in Thomas Kuhn’s sense?), a new paradigm that replaced the “neoclassical synthesis” (meaning Keynesian macroeconomics), which made the study of business cycle fluctuations to become a hard science. He then went on to ponder on what is theory and a model, very much in line with the ideas put forward by Robert Lucas (University of Chicago) – but somehow Prescott forgot how much Lucas disliked the idea of revolutions in macroeconomics, preferring to be a non-revolutionary.
Finn Kydland said that he wanted to talk about the origins of RBC macro, given that that was a historical session, organized, he believed, by the “Economic History Society”. He emphasized his links with Lucas (something also emphasized by Charles Plosser) during their years at Carnegie Mellon University, and that the RBC folks were trying to measure the business cycle in order to “use no sun glasses to see what was going on.”
Gary Hansen came to the panel as the former graduate student of those important macroeconomists, the youngest in the panel, emphasizing the boldness of a student in the early 1980s at the University of Minnesota writing a thesis on a very controversial literature and one with a high entry cost (due to the mathematical and computational innovations brought by the RBC models).
Thomas Cooley followed on Hansen’s age hook and told that the evening before the session he was with a colleague in a bar, and he talked about it with him. His colleague then turned and asked: “What is that panel, on Jurassic economics?”
The tone of the session, including comments from the audience (that had important macroeconomists in it, as Costas Azariadis and Charles R. Nelson, for example), was that of great men who fabricated a revolution in macroeconomics, changing for good the way macroeconomics is done. The idea of bringing a new methodology with an emphasis on quantitative models was very much emphasized. Cooley also recast a metaphor allegedly used by Lionel McKenzie in a lecture on general equilibrium in a past AEA meeting, saying that the RBC model is like a medieval cathedral that provides a basic structure that can be changed to incorporate new elements. The controversial and marginalized barbarians of the 1980s were happy to claim they have conquered macroeconomics in a definitive way, as they understand the current dynamic stochastic general-equilibrium (DSGE) models – which they see as the state of the art today – to be the ultimate development of their methodology.
The audience filled a big room to witness the remembrances of great macroeconomists. The legendary barbarians all see that they are not out of business and that there is work to be done, but usually ending their short talk here, without expanding much on the lines of future research (and also not engaging in the question asked on what is RBC after the crisis). There was no counterpoint, theoretical or historical, to the stories being told. The work that historians of economics have done on the developments of macroeconomics was simply out of the frame. Practitioners distilled their personal views on the past, present and future of RBC macroeconomics, and did not engage in a deeper historical debate with a broader context of how this area developed. Good to have the room filled, but a wearisome story to listen once again.