Alan Auerbach, Yuriy Gorodnichenko, Daniel Murphy, 18 December 2019

Despite decades of research, there still is no consensus over whether neoclassical, New Keynesian, or other frameworks accurately capture the underlying sources and mechanisms of economic fluctuations. The column uses new empirical data on demand shocks to evaluate the predictions of these models for labour share, labour wedge, wage and price response, and multipliers. Each model tends to do well by some metrics but poorly by others.

Joshua Aizenman, 03 January 2016

The Global Crisis renewed debate on the benefits and limitations of coordinating international macro policies. This column highlights the rare conditions that lead to international cooperation, along with the potential benefits for the global economy. In normal times, deeper macro cooperation among countries is associated with welfare gains of a second-order magnitude, making the odds of cooperation low. When bad tail events induce imminent and correlated threats of destabilised financial markets, the perceived losses have a first-order magnitude. The apprehension of these losses in times of peril may elicit rare and beneficial macro cooperation.

Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015

China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.

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