Speculative Markets and Macroeconomic Controversy

During the past decade the areas of macroeconomics, speculative markets and international finance have been characterized by very sharp controversy. The main reason for the controversy is that the “conventional wisdom” has been found to be inconsistent with the empirical evidence. Consequently, the challenge is to formulate a more satisfactory theory. The basic problems in all these areas are interrelated, because of the crucial role of anticipations hypotheses. Recent work in speculative markets in general and, in particular futures markets in commodities, financial instruments, stock indexes and foreign exchange, has profound implications for the microeconomic foundations of macroeconomic controversy. The purpose of this paper is to show how the study of microeconomic markets can evaluate the controversy surrounding the various macroeconomic models.