Summer Institute
I exactly got dorsum from the NBER Summer Institute. The Economic Fluctuations too Growth meeting organized past times Larry Christiano too Republic of Chad Jones sparks some thoughts on where macro is too where we're going. (I also attended the monetary economic science too property pricing meetings, which were first-class too thought provoking too, but i tin hand notice solely weblog therefore much.)
Review:
There were 2 papers on macro theory. Fist, the conference started amongst Gauti Eggertsson too Neil Mehrotra's "A Model of Secular Stagnation," which I discussed, slides here.
I think it's an of import paper. The criterion uncomplicated New-Keynesian model has a lot of problem to create a steady slump amongst positive inflation. So if yous desire "secular stagnation," yous demand a novel model. I also direct maintain a lot of problem amongst the "negative natural rate." It tends to live a deus-ex-machina, output is lower than I'd similar therefore the natural charge per unit of measurement must live negative. It would live much to a greater extent than convincing if nosotros could separately mensurate the natural rate, but that every bit good needs a model. This newspaper provides a model whose steady states resemble one-time fashioned static Keynesian relations, non the dynamic new-Keynesian ones, too a model where i could think nigh separately measure the negative natural rate.
"Important" doesn't hateful "right" or "conclusive." This model rules out storage, has no money, too hobbles the charge per unit of measurement of render on capital, all of which tend to set bounds of cypher or inward 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 inward information from closed to 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 too Keynes' Views of Recessions," which Ivan Werning discussed. It was a rather complex model trying to capture overaccumulation too 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 inward the financial crisis raised prices; companies amongst a lot of cash lowered them. Clean dynamic model, gear upwards clean data, a overnice flake of the micro information analysis going on inward macro these days.
Sarah Zubairy presented her newspaper amongst Valerie Ramey, "Government Spending Multipliers inward Good Times too inward Bad: Evidence from U.S. Historical Data," discussed past times Yuriy Gorodnichenko. As Valerie has done before, they regress output on armed forces spending shocks to approximate multipliers. Here the query is whether the effects are larger when at that topographic point is higher unemployment or a depression involvement rate, amongst a bunch of modest but of import methodological improvements. The determination is no, too multipliers a flake below i throughout, but much methodological give-and-take on how i interprets the facts.
There were 2 "Growth" papers. First, Roland Benabou presented "Forbidden Fruits: The Political Economy of Science, Religion too Growth" amongst Davide Ticchi too Andrea Vindigni. The basic thought is that faith blocks or adapts to novel ideas, going dorsum centuries. History, going dorsum a K years, regressions of patents on religiosity, all edifice to a large model, amongst department titles similar "Inequality, Religion too the Politics of Science."
Paul Romer "discussed" the paper, i.e. gave a long too thoughtful speech, roofing religion, social norms, neuroeconoimcs (Southerners faced amongst a slight insult direct maintain large spikes inward cortisol levels compared to Northerners), the shocking charge per unit of measurement of incarceration inward the US, words vs. equations inward economics, too lots more.
Last but sure enough non least, Ufuk Akcigit presented "Young, Restless too Creative: Openness to Disruption too Creative Innovations" amongst Daron Acemoglu too 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 attain economic science was a large subject running through all the discussion. Words vs. equations; models too empirical work; too what kinds of things nosotros await at too what form of piece of work people are doing.
Most of the theory papers had some "motivating" facts. Most of the facts papers too to a greater extent than or less motivating theory. Not i newspaper wrote downwardly a model, estimated or calibrated its parameters, too 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 every bit good difficult to write downwardly models rich plenty to direct maintain to the data.
This bespeak came upwards in i lawsuit to a greater extent than too 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 live used to guide too constrain regressions, too to hand a to a greater extent than structural interpretation to the parameters. Pat Kehoe, bespeak 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 illustration the static Keynesian model says consumption should rise. The existent job organisation bicycle model gives a multiplier through impoverishing people, which has articulation predictions across consumption, labor, etc. Likewise I complained that inward wars, the supposition that everything else is on average equal -- made when regressing output on financial shocks -- seems a flake stretched.
Similarly, both of the macro theory papers stopped good brusk of serious confrontation amongst data. We didn't reckon anything similar the criterion fully specified models of the Larry Christiano type, compared to, say, impulse-response functions. The models are therefore stylized yous can't start to quantify them. (I got off cheap shot pointing out that secular stagnation required deflation inward the model. Since nosotros attain non direct maintain deflation, instance closed. It's a inexpensive shot because I think the model could live easily modified to direct maintain stagnation amongst depression positive inflation.) This every bit good is non actually a criticism. I've been working amongst simpler too simpler models, every bit I uncovering it difficult to continue the intuition too quantitative parable expression live every bit models larn to a greater extent than complex. You direct maintain to walk earlier yous tin hand notice run. But questions like, how could Ed Prescott too Ellen McGrattan move out off too mensurate the natural rate, are non nevertheless answered.
Influenza A virus subtype H5N1 similar number came upwards inward the newspaper I discussed for Asset Pricing, Aytek Malkhozov, Philippe Mueller, Andrea Vedolin, too Gyuri Venter "Mortgage Risk too the Yield Curve," slides here. It developed a actually overnice arbitrage-free model amongst render effects. And therefore 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 mayhap every bit good uncomplicated to attain that. And, everyone else seems to live writing papers the same way. It's non a criticism, here, but an observation on our emerging culture.
Math vs. literature is a similar subject to atheoretical regressions/models every bit parables vs. estimates too tests. In my thirty years every bit an economist, our acre has move out much to a greater extent than literary too less quantitative. In part that reflects a unlike emphasis. It's actually difficult to construct 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 too forces logic to live out inward the open. He linked linguistic communication to us vs. them, social norms, morality, too those pesky cortisol levels. (I'm doing my best to recall a speech, therefore forgive me Paul if I don't larn it all right.) He pointed to my utilization of "paleo-Keynesian" to depict the static models from the 1960s, guessing nobody would recall anything else from my discussion. When I complained that Paul Krugman invented the term, he pointed out (correctly) that such borrowing exactly made its utilization to a greater extent than rhetorically effective. There move out the cortisol levels. I'm non sure inward the terminate though whether Paul was approbation or bemoaning the shift dorsum towards literature inward economical analysis. Certainly his vision for the hereafter of growth theory, centered on values, social norms, biology, too therefore forth, does non lend itself easily to quantification.
The utilization of ancient quotations came upwards several times. I complained a flake nigh Eggertsson too Mehrotra's long efforts to necktie their piece of work to quotes from verbal speculations of Keynes, Alvin Hansen, Paul Krugman too Larry Summers. Their rhetorical device is, "aha, these equations finally explicate what some sage of eighty years agone or Important Person today actually meant." Ivan Werning actually complained nigh this inward Paul Beaudry's presentation. What does this complex slice of good worked out "21st century economics" direct maintain to attain amongst long agone dingy debates betwixt Keynes too Hayek? It stands on its own, or it doesn't. (In his view, it did, therefore 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 too depict the data, non if they fulfill the vague speculations of some sage, dead or alive. It's peculiarly unhelpful to essay to brand this connection, I think, because the models differ quite sharply from the speculations of the sage. Alvin Hansen sure enough did non think that a Taylor involvement charge per unit of measurement dominion amongst a phi parameter greater than i was a primal culprit inward "secular stagnation." I haven't checked against the speech, but I uncertainty he thought that inflation would completely cure the job inward the kickoff place.
Sure, history of thought is important; tying ideas to their historical predecessors is important; recognizing the centuries of thinking on coin too job organisation cycles is important. But let's stand upwards up for our ain generation; nosotros attain non be but to finally set equations inward the mouths of ancient economists.
But, tying it all up, mayhap I'm exactly beingness an one-time fogey. Adam Smith wrote by too 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 every bit good 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 error for going to the NBER too non the Minnesota Macro meetings.
Influenza A virus subtype H5N1 lastly thought. Economic Fluctuations merged amongst Growth inward the mid 1990s. At the fourth dimension at that topographic point was a non bad confluence of method every bit good every bit interest. Growth theorists were studying growth amongst Bellman equations, dynamic full general equilibrium models of conception too transmission of ideas, thinking nigh where productivity shocks came from. Macroeconomists were using Bellman equations, too studying dynamic full general equilibrium models amongst stochastic technology, along amongst diverse frictions too other propagation mechanisms.
That confluence has straightaway diverged. I enjoyed spending an lx minutes or 2 thinking nigh how faith has blocked or adapted to ideas over the centuries, too Paul's sentiment on social norms or neuroeconomics. But I don't actually direct 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 stream of the faculty are a picayune 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 direct maintain gone their assort ways. Perhaps it's fourth dimension to merge fluctuations amongst finance, where nosotros look to live talking nigh the same issues too using the same methods, too growth to merge amongst institutions too political or social economics.
Review:
There were 2 papers on macro theory. Fist, the conference started amongst Gauti Eggertsson too Neil Mehrotra's "A Model of Secular Stagnation," which I discussed, slides here.
I think it's an of import paper. The criterion uncomplicated New-Keynesian model has a lot of problem to create a steady slump amongst positive inflation. So if yous desire "secular stagnation," yous demand a novel model. I also direct maintain a lot of problem amongst the "negative natural rate." It tends to live a deus-ex-machina, output is lower than I'd similar therefore the natural charge per unit of measurement must live negative. It would live much to a greater extent than convincing if nosotros could separately mensurate the natural rate, but that every bit good needs a model. This newspaper provides a model whose steady states resemble one-time fashioned static Keynesian relations, non the dynamic new-Keynesian ones, too a model where i could think nigh separately measure the negative natural rate.
"Important" doesn't hateful "right" or "conclusive." This model rules out storage, has no money, too hobbles the charge per unit of measurement of render on capital, all of which tend to set bounds of cypher or inward 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 inward information from closed to 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 too Keynes' Views of Recessions," which Ivan Werning discussed. It was a rather complex model trying to capture overaccumulation too 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 inward the financial crisis raised prices; companies amongst a lot of cash lowered them. Clean dynamic model, gear upwards clean data, a overnice flake of the micro information analysis going on inward macro these days.
Sarah Zubairy presented her newspaper amongst Valerie Ramey, "Government Spending Multipliers inward Good Times too inward Bad: Evidence from U.S. Historical Data," discussed past times Yuriy Gorodnichenko. As Valerie has done before, they regress output on armed forces spending shocks to approximate multipliers. Here the query is whether the effects are larger when at that topographic point is higher unemployment or a depression involvement rate, amongst a bunch of modest but of import methodological improvements. The determination is no, too multipliers a flake below i throughout, but much methodological give-and-take on how i interprets the facts.
There were 2 "Growth" papers. First, Roland Benabou presented "Forbidden Fruits: The Political Economy of Science, Religion too Growth" amongst Davide Ticchi too Andrea Vindigni. The basic thought is that faith blocks or adapts to novel ideas, going dorsum centuries. History, going dorsum a K years, regressions of patents on religiosity, all edifice to a large model, amongst department titles similar "Inequality, Religion too the Politics of Science."
Paul Romer "discussed" the paper, i.e. gave a long too thoughtful speech, roofing religion, social norms, neuroeconoimcs (Southerners faced amongst a slight insult direct maintain large spikes inward cortisol levels compared to Northerners), the shocking charge per unit of measurement of incarceration inward the US, words vs. equations inward economics, too lots more.
Last but sure enough non least, Ufuk Akcigit presented "Young, Restless too Creative: Openness to Disruption too Creative Innovations" amongst Daron Acemoglu too 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 attain economic science was a large subject running through all the discussion. Words vs. equations; models too empirical work; too what kinds of things nosotros await at too what form of piece of work people are doing.
Most of the theory papers had some "motivating" facts. Most of the facts papers too to a greater extent than or less motivating theory. Not i newspaper wrote downwardly a model, estimated or calibrated its parameters, too 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 every bit good difficult to write downwardly models rich plenty to direct maintain to the data.
This bespeak came upwards in i lawsuit to a greater extent than too 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 live used to guide too constrain regressions, too to hand a to a greater extent than structural interpretation to the parameters. Pat Kehoe, bespeak 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 illustration the static Keynesian model says consumption should rise. The existent job organisation bicycle model gives a multiplier through impoverishing people, which has articulation predictions across consumption, labor, etc. Likewise I complained that inward wars, the supposition that everything else is on average equal -- made when regressing output on financial shocks -- seems a flake stretched.
Similarly, both of the macro theory papers stopped good brusk of serious confrontation amongst data. We didn't reckon anything similar the criterion fully specified models of the Larry Christiano type, compared to, say, impulse-response functions. The models are therefore stylized yous can't start to quantify them. (I got off cheap shot pointing out that secular stagnation required deflation inward the model. Since nosotros attain non direct maintain deflation, instance closed. It's a inexpensive shot because I think the model could live easily modified to direct maintain stagnation amongst depression positive inflation.) This every bit good is non actually a criticism. I've been working amongst simpler too simpler models, every bit I uncovering it difficult to continue the intuition too quantitative parable expression live every bit models larn to a greater extent than complex. You direct maintain to walk earlier yous tin hand notice run. But questions like, how could Ed Prescott too Ellen McGrattan move out off too mensurate the natural rate, are non nevertheless answered.
Influenza A virus subtype H5N1 similar number came upwards inward the newspaper I discussed for Asset Pricing, Aytek Malkhozov, Philippe Mueller, Andrea Vedolin, too Gyuri Venter "Mortgage Risk too the Yield Curve," slides here. It developed a actually overnice arbitrage-free model amongst render effects. And therefore 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 mayhap every bit good uncomplicated to attain that. And, everyone else seems to live writing papers the same way. It's non a criticism, here, but an observation on our emerging culture.
Math vs. literature is a similar subject to atheoretical regressions/models every bit parables vs. estimates too tests. In my thirty years every bit an economist, our acre has move out much to a greater extent than literary too less quantitative. In part that reflects a unlike emphasis. It's actually difficult to construct 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 too forces logic to live out inward the open. He linked linguistic communication to us vs. them, social norms, morality, too those pesky cortisol levels. (I'm doing my best to recall a speech, therefore forgive me Paul if I don't larn it all right.) He pointed to my utilization of "paleo-Keynesian" to depict the static models from the 1960s, guessing nobody would recall anything else from my discussion. When I complained that Paul Krugman invented the term, he pointed out (correctly) that such borrowing exactly made its utilization to a greater extent than rhetorically effective. There move out the cortisol levels. I'm non sure inward the terminate though whether Paul was approbation or bemoaning the shift dorsum towards literature inward economical analysis. Certainly his vision for the hereafter of growth theory, centered on values, social norms, biology, too therefore forth, does non lend itself easily to quantification.
The utilization of ancient quotations came upwards several times. I complained a flake nigh Eggertsson too Mehrotra's long efforts to necktie their piece of work to quotes from verbal speculations of Keynes, Alvin Hansen, Paul Krugman too Larry Summers. Their rhetorical device is, "aha, these equations finally explicate what some sage of eighty years agone or Important Person today actually meant." Ivan Werning actually complained nigh this inward Paul Beaudry's presentation. What does this complex slice of good worked out "21st century economics" direct maintain to attain amongst long agone dingy debates betwixt Keynes too Hayek? It stands on its own, or it doesn't. (In his view, it did, therefore 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 too depict the data, non if they fulfill the vague speculations of some sage, dead or alive. It's peculiarly unhelpful to essay to brand this connection, I think, because the models differ quite sharply from the speculations of the sage. Alvin Hansen sure enough did non think that a Taylor involvement charge per unit of measurement dominion amongst a phi parameter greater than i was a primal culprit inward "secular stagnation." I haven't checked against the speech, but I uncertainty he thought that inflation would completely cure the job inward the kickoff place.
Sure, history of thought is important; tying ideas to their historical predecessors is important; recognizing the centuries of thinking on coin too job organisation cycles is important. But let's stand upwards up for our ain generation; nosotros attain non be but to finally set equations inward the mouths of ancient economists.
But, tying it all up, mayhap I'm exactly beingness an one-time fogey. Adam Smith wrote by too 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 every bit good 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 error for going to the NBER too non the Minnesota Macro meetings.
Influenza A virus subtype H5N1 lastly thought. Economic Fluctuations merged amongst Growth inward the mid 1990s. At the fourth dimension at that topographic point was a non bad confluence of method every bit good every bit interest. Growth theorists were studying growth amongst Bellman equations, dynamic full general equilibrium models of conception too transmission of ideas, thinking nigh where productivity shocks came from. Macroeconomists were using Bellman equations, too studying dynamic full general equilibrium models amongst stochastic technology, along amongst diverse frictions too other propagation mechanisms.
That confluence has straightaway diverged. I enjoyed spending an lx minutes or 2 thinking nigh how faith has blocked or adapted to ideas over the centuries, too Paul's sentiment on social norms or neuroeconomics. But I don't actually direct 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 stream of the faculty are a picayune 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 direct maintain gone their assort ways. Perhaps it's fourth dimension to merge fluctuations amongst finance, where nosotros look to live talking nigh the same issues too using the same methods, too growth to merge amongst institutions too political or social economics.
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