Wednesday Sanity Break, 26 June, 2019 – Reforming Macroeconomics
‘Investors Are Glum, Even With Stocks at All-Time Highs’ writes Akane Otani in the Wall Street Journal.
This comes from the digital version of the WSJ, which apparently can be available free, though I could not wait for minutes to find out. A complementary article in the paper version Monday lead as follows: ‘Bond-yield Drop Fuels Uncertainty‘. The opening paragraph says: ‘The collapse in bond yields since this spring has been stark, swift and global, upending expectations that the world’s economy would be strong enough to support a return normal monetary policy after years of easy money’
Prepare for rough water gentle readers. Stock prices in the USA are at record highs, and bond yields in Europe are negative. This odd conjunction is more evidence of a global economy, and central banks, confused and uncertain.
At Cornell, just finished a two day workshop on ‘Advances in Macro-Economic Dynamics: A Workshop on Theories, Models and Methods.’ Subjects discussed were Financial Frictions, Heterogeneous Agents, Animal Spirits and Monetary Disequilibrium and Endogenous Technical Progress and Secular Stagnation.
Questions asked included: What created the Global Financial Crisis and the death of the Great Moderation? Why is goods and services inflation so low? What drives asset inflation? How secure is the world economy given the state of monetary and fiscal policy?
The ‘DGSE’ model so loved by central banks was universally damned as a cheap fudge machine. (My words.) State of the art structural Macro models were analysed and ‘missing’ subjects were listed. These included household and government debt, house price inflation and how to include the insights of Hyman Minsky.
A general view was that global economic development was still in dangerous territory after sluggish recovery from the GFC, with high asset inflation, very low goods and services inflation. The combination of high debt of household and government debt and low interest rate limited the room for remedial policy change.
Some of the group were spatial economists and there was a very interesting discussion of ways to combine multi-regional and multi-country modelling with macro modelling.
The final session drew attention to a series of programs under the monica ‘Julia’. A clever mathematician showed as his work of spatio-termporal macro-policy modelling. And in conclusion, a discussion was how better to teach macroeconomics was greatly enjoyed.
Great thanks went to Kieran Donaghy of Cornell University for organising an exciting workshop. Also to Geoffrey Hewings of University of Illinois at Urbana- Champaign and a most thoughtful energy economist, Timothy Mount of Cornell
Back in Australia Fiona Prior visits Alice Birch’s ‘Anatomy of a Suicide’, theatre that encases the lives of three generations of women – mother, daughter, granddaughter, who all have a genetic predisposition to extreme depression. Surprisingly, ‘Anatomy of a Suicide’ is not so much depressing as illuminating and well worth your attention as an insight into life, hope and capturing those moments of joy while you can. More here.