This chapter is dedicated to the early macro-dynamic model and their common idea: the economy oscillated around a position of equilibrium, implying that the economy was stable or would cycle around a unique stationary state. This notion was challenged by Irving Fischer, who urged econometricians to consider that the economy might only be stable near its stationary state. Tinbergen accepted this challenge and was the first to present various scenarios of multiple equilibrium, which could lead to a complete collapse of the economy outside of the equilibrium’s neighborhood.
Around the same period, Frisch, inspired by Fischer, proposed integrating the idea of systemic instability into his models, culminated in significant discussions at the 1935 Namur meeting of the Econometric Society.
In the end, although relaxation oscillations were shunted aside at a time when other approaches to economic fluctuations became available, it was not the case for these nonlinear models. Even though they became less visible than the linearized macroeconometric models, they remained present for some years and even more importantly they shaped the way shocks were understood. It became in particular a building block of Tinbergen’s models that shocks had to be small in order that the linearity hypothesis could hold.
Resilience against shocks was thus one of his recommendations for economic policy, which became his central focus in the coming years, as for many other economists. Tinbergen’s exploration of nonlinear models was thus not the expression of an eclectic curiosity, but rather another manifestation of his larger project.
Posts in this section:
[chapter 6 posts]
Cosmogonies in Economics : Leijonhuvfud’s take on “Corridor stability”