The field of macroeconomics can be divided loosely into two branches, a theoretical branch, which sets out the vision of how macroeconomic problems may come about and how they might best be dealt with, and an applied branch, which talks about actual policy – questions such as: Should one use monetary policy to stimulate output? Should one use fiscal policy to offset recessions? And: Should the interest rate or the money supply be used as a measure of monetary tightness? The two branches are of course related with theoretical work guiding policy, and experience in policy guiding theoretical work. But the relation is loose and indirect.

Over the last 30 years, the two branches of macro have become further and further divided as the theoretical macromodels have become more complicated and as our understanding of the statistical problems of fitting the models to the empirical evidence has improved. Today, almost all economists agree that the simple models of yesterday – both theoretical IS/LM type models and the structural macroeconometric models that accompanied them – were far from adequate as theoretical models or as a guide to policy. In response, modern macrotheory has become a highly technical theoretical and statistically sophisticated field of study in which microfoundations of macrotheory play a central role.

Because of the technical difficulty of the tools needed to study macroeconomic theory grounded in microfoundations, the underlying vision of macrotheorists is often given short shrift in both the theoretical debates and in the training of students.