But what are theses variables and relationships that have such mathematical precision? Consider V, velocity. Velocity is the residual of the measurables nominal income and money. Thus, the derivative of V with respect to i (the interest rate) is really from the derivatives, and their correlations, of nominal income and money. Are either of these stable in any sense (d(PY)/di, dM/di)? No. They have no stable values and suggest they are no better than asserting a mathematical relationship between your body temperature and how much coffee you drank based on thermodynamics: there\’s a simple effect from the initial impact, but very shortly feedback effects that make the initial physical model worthless.
And so it goes with all these relationships. The economy is a complex, nonlinear, adaptive system where short run effects are often opposite of long run effects.
In short, an interesting theory, this macroeconomics lark, but not all that much use to anyone.
No, not the Keynesian version, the RBC, New Classicals, New Keynesians and so on, it doesn\’t depend upon which flavour. Just the discipline itself, just not very useful.
Concentrate on the micro and to any useful level of accuracy, things will sort themselves out.