Macroeconomics Workshop Examines Lessons from the 2008 Global Financial Crisis
Participants from academia and industry from nine countries, six universities, and five international financial institutions gathered in June at a two-day workshop addressing criticisms of contemporary macroeconomics. "Advances in Macroeconomic Dynamics: A Workshop on Theories, Models, and Methods" was organized by Professor Kieran Donaghy with support from the Atkinson Center for a Sustainable Future.
"The 2008 global financial crisis has been a source of great embarrassment to macroeconomists," said Donaghy, who is director of graduate studies in regional science in the Department of City and Regional Planning (CRP). "They were neither able to anticipate it nor reproduce it in models that they employ to characterize the workings of modern market economies. This suggests a need to rebuild macroeconomic theory, similar to needs experienced in the 1930s at the time of the Great Depression, and in the 1970s when inflationary pressures were uncontained."
Proceeding from the understanding that macroeconomic theory, econometric estimation, and qualitative analysis and simulation are interdependent, the workshop focused on weaknesses exposed by the 2008 crisis, including unrealistic behavioral foundations, missing markets in housing and finance, movement away from strong empirical foundations, and the imposition of market stability that precludes crises from arising in macro models. Sessions focused on questions and criticism raised by the Rebuilding Macroeconomic Theory Project outlined in the Oxford Review of Economic Policy (2018), and Cornell panelists included Iwan Azis (Ph.D. RS '84), visiting lecturer in CRP and former director of economic policy coordination for the Asian Development Bank; graduate student Louis Chua (M.S. RS '20); and Donaghy.
Donaghy noted several highlights: Azis demonstrated how the so-called "real" and "financial" sectors of the macroeconomy can be interrelated in a financial computable general equilibrium model; Peter Jonson, former head of research at the Reserve Bank of Australia, discussed how the Keynesian "animal spirits" that spur investment can be explicitly introduced to macroeconomic models; Denis Richard, retired World Bank economist and presently consulting for the European Commission in the African nation of Guinea, spoke on developments in analyzing the stability of economies; and Daniela Federici of the University of Cassino considered how the curricula of graduate programs in economics can be modified to equip the next generation of macroeconomists with the tools they will need to analyze, explain, and address future crises.
According to Donaghy, presentations and panel discussions from the workshop may lead to a publication as well as generating new pedagogical material for graduate-level macroeconomics classes and seminars.
The other panelists and speakers were:
- Giorgio Calcagnini, University of Urbino
- Geoffrey Hewings, University of Illinois at Urbana-Champaign, Federal Reserve Bank of Chicago
- Jingwen Li, Cornell University
- Bernardo Maggi, University of Rome
- Timothy Mount, Cornell University
- Enrico Saltari, University of Rome
- Clifford Wymer, University of Rome, International Monetary Fund (ret.)
By Patti Witten