Itay Goldstein and Assaf Razin — Theories of financial crises

Broadly speaking, there are three types of economic crisis: banking crises and panics, credit frictions and market freezes, and currency crises. This column argues that features from these types of crises have been at work and interacted with each other to shape the events of the last few years. From an extensive review of literature on these issues, it’s clear that the biggest challenge policymakers and economists face is in developing integrative models that better describing contemporary economic realities.

VOX.eu
Theories of financial crises
Itay Goldstein, Professor of Finance at the Wharton School of the University of Pennsylvania, and Assaf Razin, Barbara and Steven Friedman Professor of International Economics, Cornell University; Bernard Schwartz Professor (Emeritus), Tel Aviv University

Lars Syll — Macroeconomic quackery (from Robert Lucas)

In a recent interview Robert Lucas says he now believes that “the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.”

So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. unemployment that we have seen during the last six or seven decades.

Lars P. Syll's blog
Macroeconomic quackery
Lars P. Syll | Professor of Economics, Malmo University

Greg Hannsgen — Fiscal Policy Debates and Macro Models Abound in the News

Many of the themes in fiscal policy, economic growth, and distribution that we have been working on here have been in the news lately. Scholars from many fields are weighing in. One common theme is dynamics and their importance:

Multiplier Effect
Fiscal Policy Debates and Macro Models Abound in the News
Greg Hannsgen

Bridget Rosewell — Macro-Economic Modelling and Its Uses

An International Macro Symposium conference this week hosted by the ESRC and the Oxford Martin School has brought home to me how little things have changed in some quarters. There is still a belief that with some tweaks the old modelling frameworks can capture the elements that were missing before the crisis, and a deeply held belief that agents that maximise are the key components of the economy.

What became clearer to me in the discussions in the symposium is why I think this is wrong. I’ll start with maximisation, partly because it is such a key part of the economist’s toolkit. Surely, we say, people will learn, and will find out how to describe reality and react to it in ways that can be captured in models. To the extent that they fail, this is already dealt with by thinking in terms of bounded rationality and limited information. And of course agents can differ in their tastes in some way. But this misses the point. All such approaches fail to distinguish between individual and collective behaviour. Once my choices are affected by yours, outcomes can exhibit contagion and cascades and the order in which decisions are made in time and space will affect any individual outcome. In these circumstances, it is not clear what role maximisation actually plays in defining a macroeconomic outcome. Sure people may intend to do so, but most decisions are not being made in any way that such a hypothesis would recognise and each decision in turn informs the constraints on the next one. So the path taken would be hard to characterise in equilibrium terms.

Synthesis
Macro-Economic Modelling and Its Uses
Bridget Rosewell

What do you know. A systems thinker. And according to her report, she is not alone.

Introducing Evan Soltas, a new face and a new model

So today is a big day. Today, I'm launching what will become a regular feature on this blog, the real-time macro forecasting model. Eventually, I'll integrate it into the righthand column, just as Nate Silver does with his "FiveThirtyEight Forecast." (I have yet to come up with a good name. I'm open to suggestions in the comments.) The aim, in fact, is to build a macroeconomic equivalent of FiveThirtyEight.

The idea is that the macro community focuses on a few "big numbers": quarterly real GDP, unemployment, nonfarm payrolls, and CPI/PCE inflation (core and headline). And we get all of these other indicators during the interim, ranging from stock indices to initial claims for unemployment.

I've built a real-time predictive model for quarterly annualized growth in real GDP which I'll update daily, very much as Silver does with his model. As a cautionary note, it is in the very early stages, and the prediction intervals for GDP are very wide -- a root-mean-square error of 2.88 projecting the model back from 1948 through 2012, although it is roughly twice as accurate post-1980 -- but I intend on making it more accurate and adding more functionality, including a forecasting side to it, over the coming weeks....

My model replicates a similar program developed by the Treasury Department, according to this academic report here, although I plan on moving well beyond what is described here over time.

Evan Soltas | economics & thought
The Model
Evan Soltas

I am proud to announce I will be joining Ezra Klein's "Wonkblog" as the writer of Wonkbook, the daily morning email newsletter on public policy, at The Washington Post.

An Announcement

I am proud to announce, following the notice earlier this week that I am the new writer of Ezra Klein's Wonkbook newsletter at The Washington Post, that I am joining Bloomberg View as a blogger for "The Ticker."

Another Announcement

Emanuele Campiglio — Including banks in macroeconomic models - finally

We present the banking part of our macro model, explaining its theoretical framework and offering some numerical simulations.

NEF | New Economics Foundation
Including banks in macroeconomic models - finally
Emanuele Campiglio
 | Economics researcher