Research Newsletter 1/2010

Editorial

Mainstream macroeconomics has been quite heavily criticized for failing to predict the recent financial crisis and its extremely adverse macroeconomic effects, amounting to a global economic recession. The field has also been accused of not providing proper tools and guidance to policymakers to manage the crisis and steer economies out of recession. Such criticism is of course understandable and, at least to an extent, justified. The debate among economists has often been a politico-philosophical debate between different schools of thought about the root cause of the crisis, the best approach to modelling it and the appropriate or optimal policy response by governments and central banks.
Read more

Financial accelerator and investment in a small open economy in a currency union

It was not long ago when one had to appeal to either highly adverse systemic events like the Great Depression of the 1930s in the US and the collapse of the Nordic economies in the late 1980s and early 1990s, or to the experiences of many emerging market economies, in order to motivate research on financial factors in business fluctuations and to induce someone to write a paper for publication in a refereed international journal on this topic. Ever since the publication by Kydland and Prescott of the their article in 1982 and all the way up until the onset of the most recent financial crisis and global recession, mainstream macroeconomic theory that relied on dynamic general equilibrium representative agent modelling methodology saw no deeper reason to develop the approach to business cycle modelling so as to incorporate a genuine role for financial market frictions and imperfections.
Read more 

Dynamic stochastic general equilibrium model for China