This paper is based on a long-term research program with Rachel Kranton on the implications of identity

49

people’s decisions might be influenced by their views regarding how they, and others, should

behave.  In this broader view it is then no theoretical surprise that in consumption, investment,

and wage and price determination, macroeconomists have found excess sensitivity to variables

that the five neutralities say should play no role at all. 

It is time to restore the missing motivation to macroeconomics.

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50

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