Stockholm School (economics)

The Stockholm School was a prominent school of economic thought that flourished in Sweden during the interwar period (roughly the 1920s and 1930s). It significantly influenced macroeconomic theory and policy, particularly in the area of monetary theory and business cycle analysis. While not a unified body with a single, codified doctrine, the Stockholm School shared several key characteristics and was centered around economists associated with the University of Stockholm.

Key Characteristics:

• Emphasis on Monetary Theory: The school placed a strong emphasis on the role of money in the economy, focusing on the effects of changes in the money supply and interest rates on output, employment, and price levels. This contrasts with classical economics' relatively limited focus on monetary factors.

• Dynamic Analysis: Unlike many classical economists who favored static equilibrium models, the Stockholm School developed dynamic macroeconomic models that analyzed the economy's evolution over time. They acknowledged the importance of lags and adjustment processes in responding to economic shocks.

• Ex Ante and Ex Post: The school distinguished between "ex ante" (planned) and "ex post" (actual) variables. This distinction highlighted the discrepancies between planned investment and savings, and its implications for macroeconomic fluctuations. This concept played a significant role in their business cycle analysis.

• Interaction of Real and Monetary Factors: The Stockholm School integrated both real and monetary factors into their analysis, recognizing their interconnectedness and influence on business cycles. This contrasts with some classical models which tended to treat them in isolation.

• Keynesian Precursors: Many consider the Stockholm School to be a precursor to Keynesian economics, with certain shared ideas concerning aggregate demand, the role of expectations, and the potential for persistent unemployment. However, the Stockholm School's approach differed from Keynes' in several important aspects, particularly in their emphasis on monetary factors and their dynamic modeling frameworks.

Key Figures:

The Stockholm School included several prominent economists, most notably:

• Gunnar Myrdal
• Erik Lindahl
• Bertil Ohlin

Influence and Legacy:

The Stockholm School's influence extended beyond Sweden, contributing to the development of macroeconomic thought and influencing policy debates. Their contributions to monetary theory, dynamic modeling, and the understanding of business cycles continue to resonate in contemporary economic analysis. While not as widely known as some other schools of thought, their work provides valuable insights into the complexities of the macroeconomy. The school's emphasis on dynamic analysis and the integration of monetary and real factors paved the way for later developments in macroeconomics.