Overall, this Handbook is shaping up as a very useful resource. Really good summary and review papers are a natural way in to long literatures. Bad summary and review papers are long and boring. The conference produced the first kind. Most of the papers are rough first drafts, so make a note to come back when they're finished. A few highlights (with apologies to authors I've left out; I can't review them all here.)
Chad Jones' "The Facts of Economic Growth" is a tremendous introduction to a complex field, nicely mixing facts and ideas. If you last left growth theory with a view that ratios are stable and we just climb up with TFP, this paper will change that view. Equipment is getting cheaper. Factor shares are moving. Human capital is trending up, along with its price. R&D spending and employment share trend up. Misallocation has first-order negative effects on productivity, a finding from growth theory that macro should pay more attention to. Agriculture is declining, health care expanding. Fertility is declining. Inequality, .. yes, that too. Sometimes countries converge, sometimes they diverge.
"... once countries get on the “growth escalator,” good things tend to happen and they grow rapidly to move closer to the frontier. Where they end up depends, as we will discuss, on the extent to which their institutions improve."Jesús Fernández-Villaverde, Juan Rubio-Ramirez and Frank Schorfheide's "Solution and Estimation Methods for DSGE Models" is encyclopedic, approaching a book in itself. The technique of solving models, curiously banished from papers these days, is a dark art. There are lots of techniques. Which do you use when? think this will be a very useful "cookbook" for modelers, which is just the sort of thing handbooks are good for. We had a lively discussion on which techniques are best for which kinds of models. How many shocks, how many state variables, how important are nonlinearities all matter. I made the usual complaints about identification, and that perhaps models we know are false (one shock, many series) might not be right for formal black box estimation methods. Intuitive connection to robust facts in the data may be more important than statistical efficiency when the model is a quantitative parable.
Monica Piazzesi Martin Schneider's "Housing and Macroeconomics" -- no paper yet, alas, but look for it -- is a very nice introduction to the kind of explicit modeling interacted with data that they've been doing.
Valerie Ramey's Macroeconomic Shocks and Their Propagation took up the current state of vector autoregressions, shock identification and so forth. A great integration of a long literature. Where are we? Both Valeire and Arvind Krishnamurthy discussing showed lots of graphs with varying signs of the effects of monetary policy. Despite sixty years (since Milton Friedman regressed output on money, with high points from Tobin and Solow early 1960s; St. Louis Fed late 1960s; Sims and Granger late 1970s; Christiano-Eichenbaum-Evans 1999; Romer and Romer more recently), we're still at it. Most of the discussion pointed out how much uncertainty there still is. I opined that most of the "uncertainty" was about how much you have to torture estimates to avoid the conclusion that interest rate rises raise output and inflation.
Gary Hansen and Lee Ohanian cover "Neoclassical Theories" by example, integrating three recent models they have worked on, covering how "neoclassical" theories can account for the Great Depression, the WWII boom, and the surprisingly large postwar fluctuations at frequencies lower than standard business cycles. My discussion complained about the habit of different models for different facts, and exogenous TFP shocks. I suggests that it's time to view business cycle TFP movements as more than just scientific innovation identified by residual, but rather to include and independently measure all the "wedges" that policy is inducing between invention and adoption. Among other points.
Jim Stock and Mark Watson, "Factor Models for Macroeconomics" (No paper, alas, but look for it) is shaping up to be one of those very useful "how to" papers that handbooks can provide. Lots of insight in how to use the Stock-Watson methodology in many contexts, all in one place, and (to judge by Mark's presentation) ultra-clear and accessible.
Bob Hall closed strong with "Macroeconomics of Persistent Slumps," the latest in Bob's thinking on this subject (other highlights are his AEA Presidential Speech and Macro Annual paper.) An interesting sidelight, Bob also innovated a new solution methodology. Write the shocks as multinomials, then just solve first order conditions on the following tree. It's amazingly fast. And not in the Fernández-Villaverde, Rubio-Ramirez, Schorfheide cookbook.
Again, the other papers were great too. And the second round promises to equal if not better the first.
"I opined that most of the "uncertainty" was about how much you have to torture estimates to avoid the conclusion that interest rate rises raise output and inflation." --John Cochrane.
ReplyDeleteDoes it work the other way too? Do cuts in interest rates cut inflation?
Should the Fed adopt a 0% inflation target now, and, to get there, go to negative interest rates?
When Fed Chairman Paul Volcker dramatically raised rates in 1981 (and when the Reagan Administration was running large primary and total federal budget deficits), that seemed to "crack" inflation. Did 1980s inflation really fall in response to Volcker's reduction in rates that soon followed?
In a nation with chronic deflation, it makes sense, of course, for businesses and consumers to move to cash as a savings vehicle (no bank administrative costs, and a risk-free investment barring robbery), and then to use ready cash to avoid taxes on transactions.
It is wise policy for central banks to shoot for minor deflation, or even low inflation, given the ready availability of cash?