Macroeconomics at the Service of Public Policy

by Thomas J. Sargent (Editor), Jouko Vilmunen (Editor)

Overview

This volume uses state of the art models from the frontier of macroeconomics to answer key questions about how the economy functions and how policy should be conducted. The contributions cover a wide range of issues in macroeconomics and macroeconomic policy. They combine high level mathematics with economic analysis, and highlight the need to update our mathematical toolbox in order to understand the increased complexity of the macroeconomic environment. The volume represents hard evidence of high research intensity in many fields of macroeconomics, and warns against interpreting the scope of macroeconomics too narrowly. The mainstream business cycle analysis, based on dynamic stochastic general equilibrium (DSGE) modelling of a particular type, has been criticised for its inability to predict or resolve the recent financial crisis. However, macroeconomic research on financial, information, and learning imperfections had not yet made their way into many of the pre-crisis DSGE models because practical econometric versions of those models were mainly designed to fit data periods that did not include financial crises. A major response to the limitations of those older DSGE models is an active research program to bring big financial shocks and various kinds of financial, learning, and labour market frictions into a new generation of DSGE models for guiding policy. The contributors to this book utilise models and modelling assumptions that go beyond particular modelling conventions. By using alternative yet plausible assumptions, they seek to enrich our knowledge and ability to explain macroeconomic phenomena. They contribute to expanding the frontier of macroeconomic knowledge in ways that will prove useful for macroeconomic policy.

Product Details

ISBN-13:	9780198743767
Publisher:	Oxford University Press
Publication date:	11/10/2015
Edition description:	Reprint
Pages:	240
Product dimensions:	5.40(w) x 8.40(h) x 0.60(d)

About the Author

Thomas J. Sargent joined New York University as the first W.R. Berkley Professor in September 2002. He was awarded the 2011 Nobel Prize in Economics, shared with Princeton University's Christopher Sims, for his empirical research on cause and effect in the macroeconomy. Professor Sargent was a professor of economics at the University of Minnesota (1975- 87), the David Rockefeller Professor at the University of Chicago (1992- 98), and the Donald Lucas Professor of Economics at Stanford University (1998- 2002). He has been a senior fellow at the Hoover Institution since 1987. He earned his Ph.D. from Harvard University and was a first lieutenant and captain in the US Army. He was elected a fellow of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences. He is past president of the Econometric Society, the American Economic Association, and the Society for Economic Dynamics. Among his books is 'Robustness' (with L. P. Hansen, Princeton University Press, 2008).

Jouko Vilmunen is Head of Research at the Bank of Finland. He joined the Bank in 1988, after working as a lecturer in the Department of Economics at the University of Helsinki. Dr Vilmunen gained his PhD in 1992, after which he entered the research department of the Bank of Finland as a research supervisor. In 1994, he joined the European Commission as a national expert. In addition to his position at the Bank of Finland, Dr Vilmunen also gives lectures at universities and business schools, including lectures on monetary policy at the University of Helsinki, and open economy macroeconomics at the School of Business, Aalto University.

Table of Contents

Introduction, Thomas J. Sargent and Jouko VilmunenPart 1: Financial Crisis and Recovery1. Is the Market System an Efficient Bearer of Risk?, Kenneth Arrow2. The European Debt Crisis, Hans-Werner Sinn3. The Stagnation Regime of the New Keynesian Model and Recent US Policy, George EvansPart 2: Learning, Incentives, and Public Policy4. Notes on Agents' Behavioral Rules Under Adaptive Learning and Studies of Monetary Policy, George Evans, Seppo Honkapohja and Kaushik Mitra5. Learning and Model Validation: An Example, In-Koo Cho and Kenneth Kasa6. Bayesian Model Averaging, Learning, and Model Selection, George Evans, Seppo Honkapohja, Thomas J. Sargent, and Noah Williams7. History-Dependent Public Policies, David Evans and Thomas J. Sargent8. Finite-Horizon Learning, William Branch, George Evans and Bruce McGough9. Regime Switching, Monetary Policy, and Multiple Equilibria, Jess Benhabib10. Too Many Dragons in the Dragons' Den, Martin Ellison and Chryssi Giannitsarou11. The Impacts of Labor Taxation Reform Under Heterogeneous Domestic Labour Markets and Flexible Outsourcing, Erkki Koskela