I exactly got dorsum from the NBER Summer Institute. The Economic Fluctuations as well as Growth meeting organized past times Larry Christiano as well as Republic of Chad Jones sparks some thoughts on where macro is as well as where we're going. (I also attended the monetary economic science as well as property pricing meetings, which were first-class as well as thought provoking too, but ane tin forcefulness out solely weblog thus much.)
Review:
There were 2 papers on macro theory. Fist, the conference started amongst Gauti Eggertsson as well as Neil Mehrotra's "A Model of Secular Stagnation," which I discussed, slides here.
I think it's an of import paper. The criterion elementary New-Keynesian model has a lot of problem to scope a steady slump amongst positive inflation. So if you lot desire "secular stagnation," you lot demand a novel model. I also guide maintain a lot of problem amongst the "negative natural rate." It tends to last a deus-ex-machina, output is lower than I'd similar thus the natural charge per unit of measurement must last negative. It would last much to a greater extent than convincing if nosotros could separately mensurate the natural rate, but that also needs a model. This newspaper provides a model whose steady states resemble quondam fashioned static Keynesian relations, non the dynamic new-Keynesian ones, as well as a model where ane could think nigh separately measurement the negative natural rate.
"Important" doesn't hateful "right" or "conclusive." This model rules out storage, has no money, as well as hobbles the charge per unit of measurement of render on capital, all of which tend to position bounds of goose egg or inwards a higher identify on long-term existent involvement rates. More thoughts on the slides, which I may write upwards at to a greater extent than length some day. (Olivier Blanchard discussed the same newspaper on Friday, bringing inwards information from or thus the world. If he posts his slides I'll update.)
Second, Paul Beaudry presented his newspaper amongst Dana Galizia, Franck Portier, titled "Reconciling Hayek's as well as Keynes' Views of Recessions," which Ivan Werning discussed. It was a rather complex model trying to capture overaccumulation as well as liquidation.
There were 2 empirical papers. Simon Gilchrist, presented his newspaper amongst Raphael Schoenle, Jae Sim, Egon Zakrajsek, "Inflation Dynamics During the Financial Crisis," discussed past times Mark Bils. Companies brusk of cash inwards the financial crisis raised prices; companies amongst a lot of cash lowered them. Clean dynamic model, gear upwards clean data, a prissy fleck of the micro information analysis going on inwards macro these days.
Sarah Zubairy presented her newspaper amongst Valerie Ramey, "Government Spending Multipliers inwards Good Times as well as inwards Bad: Evidence from U.S. Historical Data," discussed past times Yuriy Gorodnichenko. As Valerie has done before, they regress output on military machine spending shocks to guess multipliers. Here the query is whether the effects are larger when at that spot is higher unemployment or a depression involvement rate, amongst a bunch of modest but of import methodological improvements. The decision is no, as well as multipliers a fleck below ane throughout, but much methodological news on how ane interprets the facts.
There were 2 "Growth" papers. First, Roland Benabou presented "Forbidden Fruits: The Political Economy of Science, Religion as well as Growth" amongst Davide Ticchi as well as Andrea Vindigni. The basic thought is that faith blocks or adapts to novel ideas, going dorsum centuries. History, going dorsum a G years, regressions of patents on religiosity, all edifice to a large model, amongst department titles similar "Inequality, Religion as well as the Politics of Science."
Paul Romer "discussed" the paper, i.e. gave a long as well as thoughtful speech, roofing religion, social norms, neuroeconoimcs (Southerners faced amongst a slight insult guide maintain large spikes inwards cortisol levels compared to Northerners), the shocking charge per unit of measurement of incarceration inwards the US, words vs. equations inwards economics, as well as lots more.
Last but sure non least, Ufuk Akcigit presented "Young, Restless as well as Creative: Openness to Disruption as well as Creative Innovations" amongst Daron Acemoglu as well as Murat Alp Celik, discussed past times Sam Kortum, The basic thought is that companies amongst immature CEOs are to a greater extent than probable to brand radical innovations rather than incremental ones. Influenza A virus subtype H5N1 complex model precedes regressions of patent citations on CEO age.
Thoughts:
Just how nosotros scope economic science was a large topic running through all the discussion. Words vs. equations; models as well as empirical work; as well as what kinds of things nosotros expect at as well as what form of piece of work people are doing.
Most of the theory papers had some "motivating" facts. Most of the facts papers as well as to a greater extent than or less motivating theory. Not ane newspaper wrote downwards a model, estimated or calibrated its parameters, as well as compared that model to data. (Gilchrist came pretty close, but to a greater extent than the exception that proves the rule.) This isn't a complaint, really, it's exactly where nosotros are. The kinds of things people desire to investigate are exactly also difficult to write downwards models rich plenty to accept to the data.
This betoken came upwards ane time again as well as again. Sam gently chided Ufuk at al for presenting 24 pages of complex model all to "motivate" some regressions. He suggested that the model should last used to guide as well as constrain regressions, as well as to plough over a to a greater extent than structural interpretation to the parameters. Pat Kehoe, quest a question, complained that it's awfully difficult to mensurate a financial multiplier amongst no guidance of which model for its possible operation. He pointed out that whatsoever model restricts how many variables together should respond to a financial expansion. For instance the static Keynesian model says consumption should rise. The existent job organisation wheel model gives a multiplier through impoverishing people, which has articulation predictions across consumption, labor, etc. Likewise I complained that inwards wars, the supposition that everything else is on average equal -- made when regressing output on financial shocks -- seems a fleck stretched.
Similarly, both of the macro theory papers stopped good brusk of serious confrontation amongst data. We didn't regard anything similar the criterion fully specified models of the Larry Christiano type, compared to, say, impulse-response functions. The models are thus stylized you lot can't laid about to quantify them. (I got off cheap shot pointing out that secular stagnation required deflation inwards the model. Since nosotros scope non guide maintain deflation, instance closed. It's a inexpensive shot because I think the model could last easily modified to guide maintain stagnation amongst depression positive inflation.) This also is non actually a criticism. I've been working amongst simpler as well as simpler models, every bit I respect it difficult to proceed the intuition as well as quantitative parable appear last every bit models larn to a greater extent than complex. You guide maintain to walk earlier you lot tin forcefulness out run. But questions like, how could Ed Prescott as well as Ellen McGrattan choke off as well as mensurate the natural rate, are non even thus answered.
Influenza A virus subtype H5N1 similar number came upwards inwards the newspaper I discussed for Asset Pricing, Aytek Malkhozov, Philippe Mueller, Andrea Vedolin, as well as Gyuri Venter "Mortgage Risk as well as the Yield Curve," slides here. It developed a actually prissy arbitrage-free model amongst furnish effects. And thus used the model solely to "motivate" regressions of returns on a mensurate of duration. Though the regression coefficient is tied to structural model parameters, the authors never made that link at all. Well, the model was possibly also elementary to scope that. And, everyone else seems to last writing papers the same way. It's non a criticism, here, but an observation on our emerging culture.
Math vs. literature is a similar topic to atheoretical regressions/models every bit parables vs. estimates as well as tests. In my xxx years every bit an economist, our acre has larn much to a greater extent than literary as well as less quantitative. In component that reflects a dissimilar emphasis. It's actually difficult to gear upwards towards maximum likelyhood tests of effects of faith on the adoption of novel ideas. Paul Romer commented on this at length, amongst "models vs. words" on his slides. In his view, math is a useful linguistic communication because it removes much of the value-laden elements of linguistic communication as well as forces logic to last out inwards the open. He linked linguistic communication to us vs. them, social norms, morality, as well as those pesky cortisol levels. (I'm doing my best to recall a speech, thus forgive me Paul if I don't larn it all right.) He pointed to my usage of "paleo-Keynesian" to push clit the static models from the 1960s, guessing nobody would recollect anything else from my discussion. When I complained that Paul Krugman invented the term, he pointed out (correctly) that such borrowing exactly made its usage to a greater extent than rhetorically effective. There choke the cortisol levels. I'm non sure inwards the halt though whether Paul was approbation or bemoaning the shift dorsum towards literature inwards economical analysis. Certainly his vision for the futurity of growth theory, centered on values, social norms, biology, as well as thus forth, does non lend itself easily to quantification.
The usage of ancient quotations came upwards several times. I complained a fleck nigh Eggertsson as well as Mehrotra's long efforts to necktie their piece of work to quotes from verbal speculations of Keynes, Alvin Hansen, Paul Krugman as well as Larry Summers. Their rhetorical device is, "aha, these equations finally explicate what some sage of lxxx years agone or Important Person today actually meant." Ivan Werning actually complained nigh this inwards Paul Beaudry's presentation. What does this complex slice of good worked out "21st century economics" guide maintain to scope amongst long agone muddied debates betwixt Keynes as well as Hayek? It stands on its own, or it doesn't. (In his view, it did, thus why belittle it?)
Yes. Physics does non write papers nigh "the Newton-Aristotle debate." Our papers should stand upwards on their ain too. They are right or incorrect if they are logically coherent as well as push clit the data, non if they fulfill the vague speculations of some sage, dead or alive. It's peculiarly unhelpful to attempt to brand this connection, I think, because the models differ quite sharply from the speculations of the sage. Alvin Hansen sure did non think that a Taylor involvement charge per unit of measurement dominion amongst a phi parameter greater than ane was a primal culprit inwards "secular stagnation." I haven't checked against the speech, but I uncertainty he thought that inflation would completely cure the job inwards the showtime place.
Sure, history of thought is important; tying ideas to their historical predecessors is important; recognizing the centuries of thinking on coin as well as job organisation cycles is important. But let's stand upwards up for our ain generation; nosotros scope non be exactly to finally position equations inwards the mouths of ancient economists.
But, tying it all up, possibly I'm exactly beingness an quondam fogey. Adam Smith wrote by as well as large words. Marx similar Keynes wrote large complicated books that people spent a century writing nigh "this is what they actually meant." Maybe models are at best quantitative parables. Maybe economic science is destined to render to this form of literary philosophy, non quantified science.
Curious also what was missing. All the macro was decidedly Keynesian. General equilibrium amongst distortions, anything other than tendency on "supply" was noticeable past times its absence. So was the discussion. But maybe that's my mistake for going to the NBER as well as non the Minnesota Macro meetings.
Influenza A virus subtype H5N1 in conclusion thought. Economic Fluctuations merged amongst Growth inwards the mid 1990s. At the fourth dimension at that spot was a dandy confluence of method every bit good every bit interest. Growth theorists were studying growth amongst Bellman equations, dynamic full general equilibrium models of project design as well as transmission of ideas, thinking nigh where productivity shocks came from. Macroeconomists were using Bellman equations, as well as studying dynamic full general equilibrium models amongst stochastic technology, along amongst diverse frictions as well as other propagation mechanisms.
That confluence has right away diverged. I enjoyed spending an lx minutes or 2 thinking nigh how faith has blocked or adapted to ideas over the centuries, as well as Paul's thought on social norms or neuroeconomics. But I don't actually guide maintain whatsoever expertise to contribute to that debate. Questions similar whether immature CEOs caput to a greater extent than innovative companies, or whether, similar deans, what matters is the historic menses of the faculty are a petty closer to home, since I pass a lot of fourth dimension consuming corporate finance. But the average sticky-price macro type does not. Likewise, when Daron Acemoglu, who seems to know everything nigh everything, has to preface his comments on macro papers amongst repeated disclaimers of lack of expertise, it's clear that the 2 fields actually guide maintain gone their assort ways. Perhaps it's fourth dimension to merge fluctuations amongst finance, where nosotros seem to last talking nigh the same issues as well as using the same methods, as well as growth to merge amongst institutions as well as political or social economics.
Review:
There were 2 papers on macro theory. Fist, the conference started amongst Gauti Eggertsson as well as Neil Mehrotra's "A Model of Secular Stagnation," which I discussed, slides here.
I think it's an of import paper. The criterion elementary New-Keynesian model has a lot of problem to scope a steady slump amongst positive inflation. So if you lot desire "secular stagnation," you lot demand a novel model. I also guide maintain a lot of problem amongst the "negative natural rate." It tends to last a deus-ex-machina, output is lower than I'd similar thus the natural charge per unit of measurement must last negative. It would last much to a greater extent than convincing if nosotros could separately mensurate the natural rate, but that also needs a model. This newspaper provides a model whose steady states resemble quondam fashioned static Keynesian relations, non the dynamic new-Keynesian ones, as well as a model where ane could think nigh separately measurement the negative natural rate.
"Important" doesn't hateful "right" or "conclusive." This model rules out storage, has no money, as well as hobbles the charge per unit of measurement of render on capital, all of which tend to position bounds of goose egg or inwards a higher identify on long-term existent involvement rates. More thoughts on the slides, which I may write upwards at to a greater extent than length some day. (Olivier Blanchard discussed the same newspaper on Friday, bringing inwards information from or thus the world. If he posts his slides I'll update.)
Second, Paul Beaudry presented his newspaper amongst Dana Galizia, Franck Portier, titled "Reconciling Hayek's as well as Keynes' Views of Recessions," which Ivan Werning discussed. It was a rather complex model trying to capture overaccumulation as well as liquidation.
There were 2 empirical papers. Simon Gilchrist, presented his newspaper amongst Raphael Schoenle, Jae Sim, Egon Zakrajsek, "Inflation Dynamics During the Financial Crisis," discussed past times Mark Bils. Companies brusk of cash inwards the financial crisis raised prices; companies amongst a lot of cash lowered them. Clean dynamic model, gear upwards clean data, a prissy fleck of the micro information analysis going on inwards macro these days.
Sarah Zubairy presented her newspaper amongst Valerie Ramey, "Government Spending Multipliers inwards Good Times as well as inwards Bad: Evidence from U.S. Historical Data," discussed past times Yuriy Gorodnichenko. As Valerie has done before, they regress output on military machine spending shocks to guess multipliers. Here the query is whether the effects are larger when at that spot is higher unemployment or a depression involvement rate, amongst a bunch of modest but of import methodological improvements. The decision is no, as well as multipliers a fleck below ane throughout, but much methodological news on how ane interprets the facts.
There were 2 "Growth" papers. First, Roland Benabou presented "Forbidden Fruits: The Political Economy of Science, Religion as well as Growth" amongst Davide Ticchi as well as Andrea Vindigni. The basic thought is that faith blocks or adapts to novel ideas, going dorsum centuries. History, going dorsum a G years, regressions of patents on religiosity, all edifice to a large model, amongst department titles similar "Inequality, Religion as well as the Politics of Science."
Paul Romer "discussed" the paper, i.e. gave a long as well as thoughtful speech, roofing religion, social norms, neuroeconoimcs (Southerners faced amongst a slight insult guide maintain large spikes inwards cortisol levels compared to Northerners), the shocking charge per unit of measurement of incarceration inwards the US, words vs. equations inwards economics, as well as lots more.
Last but sure non least, Ufuk Akcigit presented "Young, Restless as well as Creative: Openness to Disruption as well as Creative Innovations" amongst Daron Acemoglu as well as Murat Alp Celik, discussed past times Sam Kortum, The basic thought is that companies amongst immature CEOs are to a greater extent than probable to brand radical innovations rather than incremental ones. Influenza A virus subtype H5N1 complex model precedes regressions of patent citations on CEO age.
Thoughts:
Just how nosotros scope economic science was a large topic running through all the discussion. Words vs. equations; models as well as empirical work; as well as what kinds of things nosotros expect at as well as what form of piece of work people are doing.
Most of the theory papers had some "motivating" facts. Most of the facts papers as well as to a greater extent than or less motivating theory. Not ane newspaper wrote downwards a model, estimated or calibrated its parameters, as well as compared that model to data. (Gilchrist came pretty close, but to a greater extent than the exception that proves the rule.) This isn't a complaint, really, it's exactly where nosotros are. The kinds of things people desire to investigate are exactly also difficult to write downwards models rich plenty to accept to the data.
This betoken came upwards ane time again as well as again. Sam gently chided Ufuk at al for presenting 24 pages of complex model all to "motivate" some regressions. He suggested that the model should last used to guide as well as constrain regressions, as well as to plough over a to a greater extent than structural interpretation to the parameters. Pat Kehoe, quest a question, complained that it's awfully difficult to mensurate a financial multiplier amongst no guidance of which model for its possible operation. He pointed out that whatsoever model restricts how many variables together should respond to a financial expansion. For instance the static Keynesian model says consumption should rise. The existent job organisation wheel model gives a multiplier through impoverishing people, which has articulation predictions across consumption, labor, etc. Likewise I complained that inwards wars, the supposition that everything else is on average equal -- made when regressing output on financial shocks -- seems a fleck stretched.
Similarly, both of the macro theory papers stopped good brusk of serious confrontation amongst data. We didn't regard anything similar the criterion fully specified models of the Larry Christiano type, compared to, say, impulse-response functions. The models are thus stylized you lot can't laid about to quantify them. (I got off cheap shot pointing out that secular stagnation required deflation inwards the model. Since nosotros scope non guide maintain deflation, instance closed. It's a inexpensive shot because I think the model could last easily modified to guide maintain stagnation amongst depression positive inflation.) This also is non actually a criticism. I've been working amongst simpler as well as simpler models, every bit I respect it difficult to proceed the intuition as well as quantitative parable appear last every bit models larn to a greater extent than complex. You guide maintain to walk earlier you lot tin forcefulness out run. But questions like, how could Ed Prescott as well as Ellen McGrattan choke off as well as mensurate the natural rate, are non even thus answered.
Influenza A virus subtype H5N1 similar number came upwards inwards the newspaper I discussed for Asset Pricing, Aytek Malkhozov, Philippe Mueller, Andrea Vedolin, as well as Gyuri Venter "Mortgage Risk as well as the Yield Curve," slides here. It developed a actually prissy arbitrage-free model amongst furnish effects. And thus used the model solely to "motivate" regressions of returns on a mensurate of duration. Though the regression coefficient is tied to structural model parameters, the authors never made that link at all. Well, the model was possibly also elementary to scope that. And, everyone else seems to last writing papers the same way. It's non a criticism, here, but an observation on our emerging culture.
Math vs. literature is a similar topic to atheoretical regressions/models every bit parables vs. estimates as well as tests. In my xxx years every bit an economist, our acre has larn much to a greater extent than literary as well as less quantitative. In component that reflects a dissimilar emphasis. It's actually difficult to gear upwards towards maximum likelyhood tests of effects of faith on the adoption of novel ideas. Paul Romer commented on this at length, amongst "models vs. words" on his slides. In his view, math is a useful linguistic communication because it removes much of the value-laden elements of linguistic communication as well as forces logic to last out inwards the open. He linked linguistic communication to us vs. them, social norms, morality, as well as those pesky cortisol levels. (I'm doing my best to recall a speech, thus forgive me Paul if I don't larn it all right.) He pointed to my usage of "paleo-Keynesian" to push clit the static models from the 1960s, guessing nobody would recollect anything else from my discussion. When I complained that Paul Krugman invented the term, he pointed out (correctly) that such borrowing exactly made its usage to a greater extent than rhetorically effective. There choke the cortisol levels. I'm non sure inwards the halt though whether Paul was approbation or bemoaning the shift dorsum towards literature inwards economical analysis. Certainly his vision for the futurity of growth theory, centered on values, social norms, biology, as well as thus forth, does non lend itself easily to quantification.
The usage of ancient quotations came upwards several times. I complained a fleck nigh Eggertsson as well as Mehrotra's long efforts to necktie their piece of work to quotes from verbal speculations of Keynes, Alvin Hansen, Paul Krugman as well as Larry Summers. Their rhetorical device is, "aha, these equations finally explicate what some sage of lxxx years agone or Important Person today actually meant." Ivan Werning actually complained nigh this inwards Paul Beaudry's presentation. What does this complex slice of good worked out "21st century economics" guide maintain to scope amongst long agone muddied debates betwixt Keynes as well as Hayek? It stands on its own, or it doesn't. (In his view, it did, thus why belittle it?)
Yes. Physics does non write papers nigh "the Newton-Aristotle debate." Our papers should stand upwards on their ain too. They are right or incorrect if they are logically coherent as well as push clit the data, non if they fulfill the vague speculations of some sage, dead or alive. It's peculiarly unhelpful to attempt to brand this connection, I think, because the models differ quite sharply from the speculations of the sage. Alvin Hansen sure did non think that a Taylor involvement charge per unit of measurement dominion amongst a phi parameter greater than ane was a primal culprit inwards "secular stagnation." I haven't checked against the speech, but I uncertainty he thought that inflation would completely cure the job inwards the showtime place.
Sure, history of thought is important; tying ideas to their historical predecessors is important; recognizing the centuries of thinking on coin as well as job organisation cycles is important. But let's stand upwards up for our ain generation; nosotros scope non be exactly to finally position equations inwards the mouths of ancient economists.
But, tying it all up, possibly I'm exactly beingness an quondam fogey. Adam Smith wrote by as well as large words. Marx similar Keynes wrote large complicated books that people spent a century writing nigh "this is what they actually meant." Maybe models are at best quantitative parables. Maybe economic science is destined to render to this form of literary philosophy, non quantified science.
Curious also what was missing. All the macro was decidedly Keynesian. General equilibrium amongst distortions, anything other than tendency on "supply" was noticeable past times its absence. So was the discussion. But maybe that's my mistake for going to the NBER as well as non the Minnesota Macro meetings.
Influenza A virus subtype H5N1 in conclusion thought. Economic Fluctuations merged amongst Growth inwards the mid 1990s. At the fourth dimension at that spot was a dandy confluence of method every bit good every bit interest. Growth theorists were studying growth amongst Bellman equations, dynamic full general equilibrium models of project design as well as transmission of ideas, thinking nigh where productivity shocks came from. Macroeconomists were using Bellman equations, as well as studying dynamic full general equilibrium models amongst stochastic technology, along amongst diverse frictions as well as other propagation mechanisms.
That confluence has right away diverged. I enjoyed spending an lx minutes or 2 thinking nigh how faith has blocked or adapted to ideas over the centuries, as well as Paul's thought on social norms or neuroeconomics. But I don't actually guide maintain whatsoever expertise to contribute to that debate. Questions similar whether immature CEOs caput to a greater extent than innovative companies, or whether, similar deans, what matters is the historic menses of the faculty are a petty closer to home, since I pass a lot of fourth dimension consuming corporate finance. But the average sticky-price macro type does not. Likewise, when Daron Acemoglu, who seems to know everything nigh everything, has to preface his comments on macro papers amongst repeated disclaimers of lack of expertise, it's clear that the 2 fields actually guide maintain gone their assort ways. Perhaps it's fourth dimension to merge fluctuations amongst finance, where nosotros seem to last talking nigh the same issues as well as using the same methods, as well as growth to merge amongst institutions as well as political or social economics.
