The Macro Wars … Or Not
There’s been no shortage of pontificating about the state of macro (and Mark Thoma has put together a useful reading list, here). But there are two important things to note about the debate. First, it has been dominated by folks in their 50’s and beyond. And second, these rhetorical broadsides haven’t involved any actual research into the state of macro.
This is why I thought it worth highlighting Narayana Kocherlakota‘s contribution, which begins with facts and draws some useful conclusions. He starts by delineating a list of the folks who might collectively comprise the cutting edge of mainstream macro — those macroeconomists in top-15 economics departments (no business schools), tenured since 1990. Here’s his list:
- 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
Surveying the work of these folks leads Narayana to a cautiously optimistic set of conclusions about the state of the (mainstream) cutting edge, noting that:
- Macroeconomists don’t ignore heterogeneity.
- Macroeconomists don’t ignore 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.
This is an interesting perspective. Like Narayana, I know and like most of these folks. And his summary of the facts seems right. These economists are too young to be responsible for the state of modern macro, and this generation is notably absent from the current macro wars. (The headline-grabbing names, such as Krugman, Cochrane, Stiglitz, DeLong, Prescott, or Lucas, are all of an earlier vintage.) If Narayana is right, then perhaps the future is brighter than the recent past. I hope so.
But there’s one more theme missing from this summary. This is a list of economists much more interested in economic theorizing than economic policy. It’s hard to find the intellectual successors to folks like Marty Feldstein or Larry Summers — economists who consider policy advice an important role of academic economists. Notably, none of these folks have ever served on the Council of Economic Advisers. As far as I’m aware, none were advisers to either the Obama or McCain campaigns. There are a few who consult to the Fed. I’m not aware of any significant engagement of these folks with the IMF or World Bank. Perhaps, with time, this generation (my generation!) will become directly involved in the policy debate. But until this happens, Narayana’s optimism about the state of academic macro won’t translate into equal optimism about the state of macro policy debates.