Evolution Towards Macroeconomics
In the 1970s, partly in response to the high unemployment rates of the period, much work was done on the macroeconomics of “disequilibrium” or “fixed- price” macro, for example, in the excess supply/excess demand regimeswitching models of Barro and Grossman (1971), Dreze (1975, 1987) and Malinvaud (1977).
Muellbauer and Portes (1978a, b) introduced an element of forward-looking behaviour, previously missing, into these models illustrated with an attractive diagrammatic apparatus. Muellbauer and Winter (1980), in an empirical application of the ideas to UK manufacturing employment, relaxed the closed economy assumption found in many models, and the assumption that the entire economy was in one given regime. The fixed- price approach later fell out of favour with the profession as it lacked convincing explanations of pricing, the economics of labour market search and how agents' expectations were formed.3.5