Lucasian Microfoundations as a Form of Structural Realism

Abstract

This paper is an attempt to understand Robert E. Lucas’s microfounded models of the 1960-70s as results of a structuralist project. It is argued that the way Lucas derived macroeconomic outcomes from the decisions of market agents is in line with the basic tenet of the semirealist version of structural realism, where structures are conceived as relations emerging between properties of relata under specific conditions. Accordingly, after an overview of semirealism, it is emphasized that in his microfoundations project Lucas formulated the basic decision problem so that large-scale fluctuations could plausibly be traced back to agents’ properties. The transition from Lucas and Rapping’s model of the labor market to Lucas’s monetary island model is described as placing the same decision makers in a setting the specifics of which are in consonance with the assumed actions and interactions of market participants.