Journal of Evolutionary Economics

, Volume 22, Issue 4, pp 735–766 | Cite as

Does history matter?: Empirical analysis of evolutionary versus stationary equilibrium views of the economy

  • Kenneth I. CarlawEmail author
  • Richard G. Lipsey
Regular Article


The evolutionary vision in which history matters is of an evolving economy driven by bursts of technological change initiated by agents facing uncertainty and producing long term, path-dependent growth and shorter-term, non-random investment cycles. The alternative vision in which history does not matter is of a stationary, ergodic process driven by rational agents facing risk and producing stable trend growth and shorter term cycles caused by random disturbances. We use Carlaw and Lipsey’s simulation model of non-stationary, sustained growth driven by endogenous, path-dependent technological change under uncertainty to generate artificial macro data. We match these data to the New Classical stylized growth facts. The raw simulation data pass standard tests for trend and difference stationarity, exhibiting unit roots and cointegrating processes of order one. Thus, contrary to current belief, these tests do not establish that the real data are generated by a stationary process. Real data are then used to estimate time-varying NAIRU’s for six OECD countries. The estimates are shown to be highly sensitive to the time period over which they are made. They also fail to show any relation between the unemployment gap, actual unemployment minus estimated NAIRU and the acceleration of inflation. Thus there is no tendency for inflation to behave as required by the New Keynesian and earlier New Classical theory. We conclude by rejecting the existence of a well-defined a short-run, negatively sloped Philips curve, a NAIRU, a unique general equilibrium, short and long-run, a vertical long-run Phillips curve, and the long-run neutrality of money.


Evolutionary economics NAIRU New classical economics Real business cycles Time series data stationarity 

JEL Classification

E2 E3 E4 N1 O3 O4 


  1. Arthur B (1994) Increasing returns and path-dependence in the economy. University of Michigan Press, Ann Arbor, MichGoogle Scholar
  2. Carlaw KI, Lipsey RG (2006) GPT-driven, endogenous growth. Econ J 116:155–174CrossRefGoogle Scholar
  3. Carlaw KI, Lipsey RG (2011) Sustained endogenous growth driven by structured and evolving technologies. J Evol Econ 21(4):563–593CrossRefGoogle Scholar
  4. Fortin P (2001) Interest rates, unemployment and inflation: the Canadian experience in the 1990s. In: Banting K, Sharpe A, St-Hilaire F (eds) The review of economic performance and social progress: the longest decade - Canada in the 1990s, vol 1. Centre for the Study of Living Standards & The Institute for Research on Public Policy, Ottawa, pp 113–130Google Scholar
  5. Freeman C, Louçã F (2001) As time goes by: from the industrial revolutions to the information revolution. Oxford University Press, OxfordGoogle Scholar
  6. Gali J, Gertler M (1999) Inflation dynamics: a structural econometric approach. J Monet Econ 44(2):195–222CrossRefGoogle Scholar
  7. Hall RE (1980) Employment fluctuations and wage rigidity. Brookings Economic Papers 10th Anniversary Issue, p 91–123Google Scholar
  8. Hornstein A (2007) Evolving inflation dynamics and the New Keynesian Phillips curve. Fed Reserv Bank of Richmond Econ Q 93(4):317–339Google Scholar
  9. Jacob MC (1997) Scientific culture and the making of the industrial west. Oxford University Press, OxfordGoogle Scholar
  10. Jones E (1988) Growth recurring: economic change in world history. Oxford University Press, OxfordGoogle Scholar
  11. Landes D (1969) The unbound prometheus: technological change and industrial development. Cambridge University Press, LondonGoogle Scholar
  12. Landes D (1998) The wealth and poverty of nations. W.W. Norton, New YorkGoogle Scholar
  13. Lipsey RG (2000) IS-LM, Keynesianism and the New Classicism. In: Blackhouse RE, Salanti A (eds) Macroeconomics and the real world, vol 2: Keynesian economics, unemployment, and policy. Oxford University Press, Oxford, pp 57–82Google Scholar
  14. Lipsey RG (2010) Schumpeter for our century. In: Hanusch H, Kurz HD, Seidl C (eds) Homo Oeconomicus, Muchen Special Issue 27(1/2):145–176Google Scholar
  15. Lipsey RG, Scarth W (2011) The history, significance and policy context of the Phillips Curve. In: Lipsey RG, Scarth W (eds) Inflation and unemployment: the evolution of the Phillips Curve. Edward Elgar, CheltenhamGoogle Scholar
  16. Lipsey RG, Carlaw KI, Bekar C (2005) Economic transformations: general purpose technologies and long-run economic growth. Oxford University Press, Oxford, UKGoogle Scholar
  17. Lucas RE Jr., Rapping LA (1972) Unemployment in the great depression: is there a full explanation? J Polit Econ 80(1):186–191CrossRefGoogle Scholar
  18. Marx K (1957) Capital: a critique of political economy (3 vols.), translated from the 3rd German Edition by Moore S, Aveling E, Engles F (eds) Foreign Language Publishing House, MoscowGoogle Scholar
  19. MacKinnon JG, Haug A, Michelis L (1999) Numerical distribution functions of likelihood ratio tests for cointegration. J Applied Econometrics 14(5):563–577CrossRefGoogle Scholar
  20. Mokyr J (1990) The lever of riches: technological creativity and economic progress. Oxford University Press, New YorkGoogle Scholar
  21. Mokyr J (2002) The gifts of Athena: historical origins of the knowledge economy. Princeton University Press, Princeton, NJGoogle Scholar
  22. Musson AE, Robinson E (1989) Science and technology in the industrial revolution. Gordon and Breach, USAGoogle Scholar
  23. Nason JM, Smith GW (2008) The new Keynesian Phillips Curve: lessons from single-equation econometric estimation. Fed Reserv Bank of Richmond Q Rev 94:361–395Google Scholar
  24. Nelson C, Plosser C (1982) Trends and random walks in macroeconomic time series: some evidence and implications. J Monet Econ 10:139–169CrossRefGoogle Scholar
  25. Nelson R, Winter S (1982) An evolutionary theory of economic change. Harvard University Press, CambridgeGoogle Scholar
  26. North DC (1981) Structure and change in economic history. Norton, New YorkGoogle Scholar
  27. Pomeranz K (2000) The great divergence: China, Europe and the making of the modern world economy. Princeton University Press, PrincetonGoogle Scholar
  28. Rae J (1905) The sociological theory of capital. Macmillan, New York, first published in 1834 as Statement of Some New Principles on the Subject of Political Economy Exposing the Fallacies of the System of Free trade and of Some Other Doctrines Maintained in the Wealth of Nations.Google Scholar
  29. Rosenberg N (1982) Inside the black box: technology and economics. Cambridge University Press, CambridgeGoogle Scholar
  30. Schumpeter J (1934) The theory of economic development. Harvard University Press, Cambridge MassGoogle Scholar
  31. Tobin J (1998) Supply constraints on employment and output: NAIRU versus Natural Rate, paper presented at the International Conference in memory of Fausto Vicarelli, (Rome), November 2–23Google Scholar
  32. Veblen T (1953) The theory of the leisure class (revised ed.). New American Library, New YorkGoogle Scholar

Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of British ColumbiaKelownaCanada
  2. 2.Simon Fraser UniversityVancouverCanada

Personalised recommendations