Historical Macroeconomic and American Macroeconomic History.

NBER Working Paper No. 4935 November 1994 Development of the American Economy, Economic Fluctuations

Macroeconomic history offers more than longer time series or special "controlled experiments." It suggests a historical definition of the economy, which has implications for macroeconometric methods. The defining characteristic of the historical view is its emphasis on "path dependence": ways in which the cumulative past, including the history of shocks and their effects, change the structure of the economy. We review American macroeconomic history to illustrate its potential uses, and to draw out methodological implications.

"Keynesian" models can account for the most obvious cyclical patterns in all historical periods, while "new classical" models cannot. Nominal wage rigidity was important historically, and some models of wage rigidity receive more support from history than others. A shortcoming of both Keynesian and new classical approaches is the assumption that...