When is a Bubble a Bubble?

Bubbles have become a major focus of discussion in today's financial markets. But very few people actually define what they mean when describing this financial phenomenon.  

In a recent Harvard Business Review blog post, Markus Brunnermeier, an economist at Princeton University and a member of the Institute for New Economic Thinking’s Advisory Board, had a go at it. Brunnermeier defines the leading characteristics of bubbles thusly:

"Bubbles are typically associated with dramatic asset price increases followed by a collapse. Bubbles arise if the price exceeds the asset’s fundamental value." Read more

Institute Scholars Awarded EAEPE-Myrdal Prize

Servaas Storm and C.W. M. Naastepad are members of the Institute for New Economic Thinking's Working Group on the Political Economy of Distribution. Their 2012 study of Macroeconomics Beyond the NAIRU (Cambridge, MA: Harvard University Press) has just won the Myrdal Prize of the European Association for Evolutionary Political Economy.

The Institute is pleased to congratulate them on this outstanding achievement.


EAEPE-Myrdal Prize 2013


Roman Frydman: Modeling a World of Imperfect Knowledge

Does it matter if the Rational Expectations Hypothesis is unrealistic?

Not according to New York University Prof. Roman Frydman, head of the Institute for New Economic Thinking’s research group on Imperfect Knowledge Economics (IKE). Read more

Solomonic Judgment vs. Sophists, Economists and Calculators[1] [2]

Given the choice, would you accept to live in a society where happiness and prosperity is guaranteed for all on the condition that one single person be kept permanently unhappy?  Is the well-being of thousands of people “worth” the sacrifice and suffering of a single innocent child?  Such is the dilemma to which the inhabitants of the utopian city of Omelas are confronted in Ursula Le Guin’s philosophical short-story “The Ones Who Walk Away from Omelas”.  In her parable, most people are ultimately able to come to terms with the atrocity. Read more

LIVE STREAM 12/12: The Fall of the Euro

Our Hansen Moment

The main goal of the macroeconomist is to understand the sources behind business cycles and the behavior of financial markets in the modern economy.

As in any science, economics offers many ways to accomplish its tasks. What sets economics apart, however, is that this year two models that are in sharp contrast with each other in explaining the dynamics of financial assets, and were created by two high-profile economists, were selected to receive the discipline’s highest honor - the Noble Prize in economics. Read more

In which MIT decided to teach micro first so as to make economics more relevant

I've already blogged on how undergraduate education evolved at MIT in the postwar era here and here, but since Mike Konczal and Paul Krugman make the case that, to bring introductory economics closer to the real world, macro should be taught before micro as Samuelson did in the first 13 editions of his Economi Read more

Apply Now: Free Undergraduate Seminar with Michael Sandel

The Institute for New Economic Thinking is seeking a select group of undergraduate students to participate in the filming of a free, three-day series of discussions on ethics and economics with Harvard Professor and philosopher Michael Sandel, the Institute's newest Senior Fellow. Read more

Mature history of economics

In the past decade, the volume of literature in the history of economics has been of 500 articles and just under 50 books a year. The graph below traces the count in two year intervals (articles left axis, books right axis). The absolute volume is stable but given the growth of economic literature in the period, stable might be rebranded as static.

Read more

[PART 2] U.S. Current Account Deficits and German Surpluses: The Role of Income Distribution in Global Imbalances

Till van Treeck, Jan Behringer, Christian A. Belabed, and Thomas Theobald

In our two papers, we analyze how changes in personal and functional (wages versus profits) income distribution interact to produce different macroeconomic outcomes in different countries. On the basis of a stock-flow consistent model calibrated for the United States, Germany, and China, simulations suggest that a substantial part of the increase in household debt and the decrease in the current account in the United States since the early 1980s can be explained by the interplay of rising (top-end) household income inequality and certain institutions (e.g. easy access to credit, privately financed education and health care systems). Read more