Friday, September 18, 2009

Accusal against What? (fg)

Ok, I try to distend the preformance of maintream economics on the basis of a few observations; to me, the last months had been a period of criticism against the economic profession which is not all justifiable.

Still when thinking about macro, in particular about monetary economics, media as well as "heterodox" economists rub their hands with glee seeing their mainstream colleagues at back set. They often criticize the assumptions appearently made by "Chicago boys" on rational expectations, the representative household, complete financial markets or the way business cycles are modeled.

N. Kocherlakota
from Minnesota University had some thoughts on the State of Macro and comes (partly) to the conclusion that the top "young" economists who received their Phd after 1990, did a pretty good job in considering the critiques in their most influential works. I will repeat some insights here:

The following list considers the top 17 economics departments, as ranked by US News and World Report in 2009. (I would have used 15, but there was a 4-way tie for 14th in the rankings.) For each of these departments, the table lists all tenured macroeconomists who received their Ph. D. in 1990 or after (economists working on monetary economics and monetary/fiscal policy are marked italic - hopefully did not forget anyone).

MIT: Acemoglu, Angeletos, Werning
Harvard: Laibson
Chicago: Alvarez, Mulligan, Shimer, Uhlig
Princeton: Rossi-Hansberg
Stanford: Bloom, Klenow, Piazzesi, Schneider
Berkeley: Gourinchas
Yale: Engel, Golosov, Moscarini, Smith, Tsyvinski
Northwestern: Doepke
Penn: Fernandez-Villaverde, Krueger, Schorfheide
Columbia: Ng, Reis, Sala-i-Martin, Schmitt-Grohe, Uribe
Minnesota: Perri, Phelan, Rios-Rull
NYU: Lagos, Leahy, Ludvigson, Violante
Michigan: House, Killian, Stolyarov, Tesar
UCLA: Burstein, Hellwig, Ohanian
Wisconsin: Seshadri, Williams
UCSD: None
CalTech: None

Thinking about this group and their work, Kocherlakota comes to ten conclusions
  • Macroeconomists don’t ignore heterogeneity.
  • Macroeconomists don’t ignore frictions, in particualr asset market frictions
  • Macroeconomic modeling doesn’t ignore bounded rationality
  • Macroeconomic models do incorporate a role for government interventions
  • Macroeconomists use both calibration and econometrics
  • There is no freshwater/saltwater divide – now
  • These researchers have been much more interested in the consequences of shocks than in their sources
  • The modeling of financial markets and banks in macroeconomic models is stark
  • Macroeconomics is mostly math and little talk
  • The macro-principles textbooks don’t represent our field well
Update: An interesting comment about the issue is on by Gilles Saint-Paul