Empirical Macroeconomics

Don't Throw out Baby with Bath Water - Helene Rey

LBS Professor Helene Rey says that the remedy to the financial crisis is not necessarily a clean economic slate, but rather a further analysis and reconsideration of current economic models. Interviewed by Peter Leyden at King's College, April 2010.

The Upside of Wasteful Speculative Bubbles - William Janeway

William Janeway notes the prevalence (and importance) of speculative bubbles, especially in respect to equity markets and technological breakthroughs. Interviewed by Daniel Erasmus at King's College, April 2010.

Taking Radical Uncertainty Seriously in Economics - William Janeway

William Janeway talks about how uncertainty is actually different from risk, and notes that everybody in an economy has to make financial decisions in an environment of radical uncertainty. Interviewed by Daniel Erasmus at King's College, April 2010.

The Danger of Mathematical Models - Mark Blyth

The Brown professor says that perfect mathematical models are ultimately too perfect, and can seduce economists into ignoring imperfections

Richard Koo: Japanese Economic Déjà Vu

How the West is Falling Into the Same Trap as Japan in the 1990s of Failing to Understand the Strangeness of a “Balance Sheet Recession”

The world has witnessed an economic experiment since the global crash of 2008 and the ensuing Great Recession. China immediately provided a massive and sustained fiscal stimulus. The Western countries also initially provided a stimulus, but relatively quickly shifted to austerity and deficit reduction. The result: China is back booming, and the Western economies are struggling, with those cutting deeper faring worse. Read more

On the Role of Theory and Evidence in Macroeconomics


"...In 1991, the Scandinavian Journal of Economics organized a conference ëNew Ap- proaches to Empirical Economicsíin which Lawrence Summers contributed the pa- per ëThe ScientiÖc Illusion in Empirical Economicsí(Summers, 1991). He argued in the paper that empirical economics has exerted little ináuence on the development of economic theory and provided little new insight on economic mechanisms. As an illustration, he mentioned empirical analysis of representative agent models, which involves estimating a few deep parameters characterizing preferences and technology. He contrasted this analysis with sophisticated statistical techniques that impose min- imal theoretical constraints on the data, as exempliÖed by a Vector AutoRegressive (VAR) model ‡ la Sims. Summers argued that both approaches have been unable to explain the inherently richer and more complicated macroeconomic reality. He concluded that less formal examination of so-called stylized facts (correlations, mean growth rates, graphs) has resulted in more fruitful economic research.

Almost twenty years have passed since Summerís critique and the INET confer- ence seems like a good opportunity to revisit his main arguments. Has the marriage between theory and evidence improved? Has empirical economics become more enlightening?.."

This paper, which is prepared for the Inagural Conference of the Institute for New Economic Thinking in Kingís College, Cambridge, 8-11 April 2010, questions the preeminence of theory over empirics in economics and argues that empirical econometrics needs to be given a more important and inde- pendent role in economic analysis, not only to have some confidence in the soundness of our empirical Read more