The Missing Dynamics in Macroeconomics
Modern macroeconomics often begins with an assumption of general equilibrium and explains deviations through exogenous shocks. But what if this approach is missing a more fundamental source of macroeconomic motion? Using the analogy of ocean currents, this essay argues that local equilibrium conditions may be only part of the story. The most important macroeconomic behaviours may emerge from dynamic flows generated by differences between heterogeneous agents, markets and industries. Rather than viewing the economy as a system repeatedly disturbed by shocks, perhaps we should see it as a system continuously shaped by endogenous flows.