Refet Gürkaynak, Cédric Tille, 28 April 2017

Are Dynamic Stochastic General Equilibrium (DSGE) models worthwhile? Some economists suggest not, due to their complex nature and disputable assumptions.  This column introduces a new eBook which provides an all-round evaluation of DSGE models, widely used by many central banks, by looking at their current and historical uses as well as their future position in economics.

Olivier Blanchard, 03 October 2014

Before the 2008 crisis, the mainstream worldview among US macroeconomists was that economic fluctuations were regular and essentially self-correcting. In this column, IMF chief economist Olivier Blanchard explains how this benign view of fluctuations took hold in the profession, and what lessons have been learned since the crisis. He argues that macroeconomic policy should aim to keep the economy away from ‘dark corners’, where it can malfunction badly.

Marcus Miller, Lei Zhang, 10 September 2014

During the Great Moderation, inflation targeting with some form of Taylor rule became the norm at central banks. This column argues that the Global Crisis called for a new approach, and that the divergence in macroeconomic performance since then between the US and the UK on the one hand, and the Eurozone on the other, is partly attributable to monetary policy differences. The ECB’s model of the economy worked well during the Great Moderation, but is ill suited to understanding the Great Recession.

Andrew Haldane, 01 October 2012

There is a long list of culprits when it comes to assigning blame for the financial crisis. This column argues economists are among the guilty, having succumbed to an intellectual virus of theory-induced blindness. It adds this calls for an intellectual reinvestment in models of heterogeneous, interacting agents, following in the footsteps of other social scientists. This will require a sense of academic adventure sadly absent in the pre-crisis period.

Volker Wieland, Maik Wolters, 13 February 2012

Where were economists when the global recession hit? Or rather, where were their forecasts in the years before? This column argues that clearly some of the models were at fault. To correct this, it proposes a ‘comparative approach’ to macroeconomic analysis where models compete for the right to be taken seriously.

Richard Baldwin, 04 February 2011

The financial crisis and the ensuing recession have prompted reappraisals of macroeconomic theory. This column introduces Policy Insight No 53 authored by Axel Leijonhuvd that argues that it is time to stop thinking of the macroeconomy as an electrical circuit; we must think of an economy as an “open system” and adapt our methods to the nature of the economy.

Axel Leijonhufvud, 04 February 2011

The financial crisis and the ensuing recession have prompted reappraisals of the state of macroeconomic theory. CEPR Policy Insight No 53 argues that we have to think of an economy as an “open system” in the ontological sense and adapt out methods to the nature of an economy – to change how we do economics.

Martin Bodenstein, Christopher Erceg, Luca Guerrieri, 13 September 2010

CEPR Discussion Paper 8006 analyses how foreign demand shocks impact home economies when monetary policy is constrained by the zero lower bound. The authors find that even in relatively closed economies like the United States and the euro area, ZLB-constrained monetary policy amplifies the effects of foreign shocks.

Carlo Favero, Francesco Giavazzi, 21 January 2008

The European Economic and Monetary Union (EMU) has created a new economic area, larger and closer with respect to the rest of the world. Area-specific shocks are more important than country-specific, thus it is not surprising the European Central Bank (ECB) use models to study optimal monetary policy in the Euro area assuming it works essentially as a closed economy, hit primarily by domestic shocks. The authors of CEPR DP6654 explore the variable most directly related to current and expected monetary policy, the yield on long-term government bonds, and determine whether the response of long-term rates is consistent with a closed economy.