Simon Wren-Lewis on Heterodox economics, mainstream macro and the financial crisis
Here I am just going to suggest you click and read https://mainlymacro.blogspot.it/2016/08/heterodox-economics-mainstream-macro.html . I do have some thoughts at Robert’s Stochastic thoughts but I don’t think they are worth your time.
I have a problem with Simon’s discussion, but I am not going to post there as after I posted something there that criticized him, he has taken to posting nothing I send there. Anyway, what he seems to miss as far as I am concerned is that the key to all DSGE models, including these newer ones with financial frictions, is an assumption of rational expectations as part of the microfoundations. Simon mentions Minsky in connection with this issue, but Minsky had nothing to with ratex. However, Simon is very big on maintaining some sort of proper microfoundations.
I have no problem with having microfoundations, but I would say they should be based on behavioral econ and how people actually think and behave, along with preferably involving heterogeneous agents. Simon simply misses this entirely. I think this is not one of his better posts.
For the record, Simon has posted a comment by me along these lines on his site. So I retract my complaint about that issue.