John Muellbauer — Macroeconomics and consumption: Why central bank models failed and how to repair them

Good analysis of why central bank models fall short based on overly restrictive assumptions and failure to include key factors in the parameters. So the parameters that are identified are miscast and important parameters are ignored, notably the role of credit as a financial accelerator. 

vox.eu

Macroeconomics and consumption: Why central bank models failed and how to repair them
John Muellbauer | Senior Research Fellow, Nuffield College; Professor of Economics, Oxford University; and Senior Fellow, Institute for New Economic Thinking, Oxford Martin School

Matias Vernengo — Investment, interest rates and the accelerator: more evidence for the US

Christian Schoder in a recent paper (here; subscription required), following in the steps of the classic paper on the subject by Fazzari et al. (1988) and looking at the micro data on investment concludes that:

"Overall, demand constraints seem to be crucial factors contributing to the slowdown of accumulation in times of economic distress relative to credit market conditions. In contrast to the prediction of the financial accelerator literature that credit constraints tighten in the downturn (relative to demand constraints) as net worth deteriorates, the cash-flow coefficient does not exhibit a clear counter-cyclical pattern.

Naked Keynesianism
Investment, interest rates and the accelerator: more evidence for the US
Matias Vernengo | Associate Professor of Economics, University of Utah

Andrew Lainton — No, the Negro DGSE model does not Predict the Great Recession

A great deal of chatter on the blogosphere on a paper by Negro, Giannoni and Schorfheide of the NY Fed that DGSE can predict the great recession. Noahopinion discusses it the day after he musedabout what use was DGSE.

What they do is take the most well known New Keynsian model Smets-Wouters (2007) New Keynesian model and add on the the “financial accelerator” model of Bernanke, Gertler, and Gilchrist (1999). In the Financial Accelerator model credit shocks transmit through the real economy through amongst other reasons undermining the value of collatoral.

Both Noah and Mark Thoma’s reaction is ‘pah’ we could have predicted the Great Recession all along, we knew how we just didnt put two and two together’. But the Negro et al. is not a ‘forecast’ had they had the model in 2007 they would not have predicted the Great Recession. This quite apart from the criticism made by some commentators that they have engaged in post-hoc calibration of parameters to fit the result. I don’t make that accusation simply that the result forecasts nothing because their baseline data....

Decisions, Decisions, Decisions,
No, the Negro DGSE model does not Predict the Great Recession
Andrew Lainton