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Mathematical Economics

Mathematical Economics. ECON 205W Summer 2006 Prof. Cunningham. What Math Econ?. Refers to economic principles and analyses formulated and developed through mathematical symbols and methods. Not a separate school of thought, but rather a method.

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Mathematical Economics

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  1. Mathematical Economics ECON 205W Summer 2006 Prof. Cunningham

  2. What Math Econ? • Refers to economic principles and analyses formulated and developed through mathematical symbols and methods. • Not a separate school of thought, but rather a method. • Paul Samuelson, “By 1935, … [i]t became easier for a camel to pass through the eye of a needle than for a nonmathematical genius to enter into the pantheon of original theorists.” • Mathematics is used in economics in two general ways: • To derive and state theories, and • To test economic hypotheses or theories quantitatively. • Econometrics combines these two types of mathematical economics.

  3. Econometrics • Ragnar Frisch, a Norwegian economist and statistician, introduced the term “econometrics” in 1926, modeling the term after “biometrics.” • Arose out of a need to test theories, make estimates, and to forecast. • Useful in policy analysis, which predicts the impact of government policies and programs. • Large-scale econometric models.

  4. Leon Walras (1834-1910) • Developed and advocated general equilibrium analysis, in contrast with partial equilibrium analysis used by others. • Involved solving large systems of equations. • Endogeneity vs. exogeneity. • Approach leads to interest in VARs, etc., much later. (Sims, 1980)

  5. Wassily Leontief (1906-1999) • Russian-born American economist. • Ph.D., from University of Berlin, 1928. • Moved to Harvard as a faculty member. • Input-output analysis, 1936. • Widely used for planning and analysis, interest in post-war rebuilding, development, etc. • Problem: fixed technical coefficients.

  6. Von Neumann and Morgenstern • John von Neumann (1903-1957), born in Hungary, came to US in 1930 to teach at Princeton. • Okskar Morgenstern (1902-1977), economist from Vienna. • Together they wrote Theory of Games and Economic Behavior (1944). • Competition leads to economic warfare, with strategic interests.

  7. John R. Hicks (1904-1989) • Background • Professor at Oxford, Nobel Prize 1972 for pure economic theory. • 1932, Theory of Wages. 1935, “Wages and Interest.” • 1956, Revision of Demand Theory. • 1935, “A Suggestion for Simplifying Monetary Theory” • 1936, “Mr Keynes’ Theory of Unemployment”1937, “Mr Keynes and the Classics”

  8. Hicks (2) • 1939, Value and Capital. • 1950, A Contribution to the Theory of the Trade Cycle. • 1974, The Crisis in Keynesian Economics. • 1969, A Theory of Economic History. • 1973, Capital and Time: A Neo-Austrian Theory. • 1979, Causality in Economics.

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