Daily Archives: October 19, 2021

Five Ways to Build a New Macroeconomics

What is taught in today’s graduate programs as macroeconomics is entirely useless for the kinds of questions we are interested in.
(evonomics.com)By J.W. Mason –  Jón Steinsson wrote up some thoughts for this panel about the current state of macroeconomics. He begins:

There is a narrative within our field that macroeconomics has lost its way. While I have some sympathy with this narrative, I think it is a better description of the field 10 years ago than of the field today. Today, macroeconomics is in the process of regaining its footing. Because of this, in my view, the state of macroeconomics is actually better than it has been for quite some time.

I can’t help but be reminded of Olivier Blanchard’s 2008 article on the state of macroeconomics, which opened with a flat assertion that “the state of macro is good.” I am not convinced today’s positive assessment is going to hold up better than that one.

Where I do agree with Jón is that empirical work in macro is in better shape than theory. But I think theory is in much worse shape than he thinks. The problem is not some particular assumptions. It is the fundamental approach.

We need to be brutally honest: What is taught in today’s graduate programs as macroeconomics is entirely useless for the kinds of questions we are interested in.

I have in front of me the macro comprehensive exam from a well-regarded mainstream economics PhD program. The comp starts with the familiar Euler equation with a representative agent maximizing their utility from consumption over an infinite future. Then we introduce various complications — instead of a single good we have a final and intermediate good, we allow firms to have some market power, we introduce random variation in the production technology or markup. The problem at each stage is to find what is the optimal path chosen by the representative household under the new set of constraints.

This is what macroeconomics education looks like in 2021. I submit that it provides no preparation whatsoever for thinking about the substantive questions we are interested in. It’s not that this or that assumption is unrealistic. It is that there is no point of contact between the world of these models and the real economies that we live in. more>

Updates from Chicago Booth

Who is right about inflation?
The US Fed and consumers have very different expectations about the future
By Brian Wallheimer – Inflation chatter started heating up this spring, along with inflation itself. In April 2021, the US Consumer Price Index, which measures how fast prices change, rose at a 4.2 percent annual rate, more than double the usual target rate. Then in May, the inflation rate soared to 5 percent. With the worst of the pandemic seemingly easing, US consumers were apparently venturing out again and spending at a fast clip.

The figures took inflation watchers off guard. The Wall Street Journal’s editorial page noted that Federal Reserve chairman Jerome Powell had wanted some inflation but would likely be surprised by the force of April’s numbers, saying, “Powell’s inflation ship has come in, albeit more rudely than he probably wanted.”

Financial journalists and investors, always looking for signs of how the central bank will react to signs of inflation or deflation, kicked into high gear, trying to anticipate the timing of any Fed actions.

But consumers—who actually drive inflation—seemed unfazed, apparently already operating with the understanding that prices were rising fast, and would continue to do so. Homeowners remodeling their homes during the pandemic were aware of historically high lumber prices. Home cooks felt the impact on food prices. Buyers of both new and used cars saw prices surge due to a shortage of computer chips. more>

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Updates from ITU

By Houlin Zhao – The opening of ITU Digital World 2021 a few days ago represents a special moment for the International Telecommunication Union (ITU).

This latest in our Telecom conference and exhibition series had us take stock of the incredible journey of information and communication technologies (ICTs) over the last 50 years. It was also a moment to turn to the future and commit to building the digital world, together.

My message to attendees– and the world – was to seize this moment to create a better digital future for all.

A special milestone

Fifty years ago, government and industry leaders from around the world met in Geneva for the first-ever ITU Telecom.

Over the last half-century, Telecom events have provided a window into an innovative industry at the heart of life-changing advances – from the Internet to the rise of wireless networks and emerging technologies like 5G, AI and others.

As the importance of small and medium-sized enterprises (SMEs) in the ICT ecosystem grew, Telecom events gave them a voice in the global debate and a platform to showcase their creativity. SMEs have become an integral part of these events since 2015. more>

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Integration or isolation for the EU?

By Genc Pollo – Last week, European Commission President Ursula von der Leyen visited Albania and other Western Balkan countries. Her main political message was that the future of our countries is within the European Union. Regarding Tirana and Skopje, she said that she was personally determined that the EU intergovernmental conference for the opening of accession negotiations should be convened as soon as possible, preferably within this year. She promised that the path towards a common future would be outlined at the Ljubljana summit with the leaders of the European Union together with their peers from the Balkans.

In parallel with these statements, the new agency Reuters reported that the EU had not agreed to guarantee to the Western Balkan countries the prospect of membership at the Ljubljana summit.

The two-page letter of invitation to the summit, signed by European Council President Charles Michel in the last paragraphs said that on the second day, October 6, there will talk about the Balkans, the need to stabilize the region, the current social-economic developments after the pandemic, strategic cooperation, etc. No word on EU enlargement, the future membership of our countries. Meanwhile, for Slovenian Prime Minister Janez Jansa (Slovenia currently holds the six-month presidency of the European Union), EU enlargement in the Balkans was the first and only objective of this summit, which was initiated by him.

The latest from Ljubljana is, in the end, the word ‘enlargement made it to the summit declaration. more>