The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth

Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare-maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870-2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country’s wealth or capital is taken into account.

The effects of agglomeration on wages: evidence from the micro-level

This paper estimates individual wage equations in order to test two rival non-nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory , in which wages relate to employment density. The paper makes an original contribution by evidently being the first empirical paper to examine the issue of agglomeration processes associated with contemporary theory working with micro-level data, highlighting the role of gender and other individual-level characteristics. For male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.

'Modern' Phillips Curves and the Implications For The Statistical Process of Inflation

'Modern' theories of the Phillips curve imply that inflation is an integrated, or near integrated process. This paper explains this implication and why these 'modern' theories are logically inconsistent with what is commonly known about the statistical process of inflation.