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Macroeconomics workshop examines lessons from 2008 crisis

Participants from nine countries, six universities and five international financial institutions gathered at Cornell in June for a two-day workshop addressing criticisms of contemporary macroeconomics.

Kieran Donaghy

“Advances in Macroeconomic Dynamics: A Workshop on Theories, Models, and Methods” was organized by Kieran Donaghy, professor of city and regional planning in the College of Architecture, Art and Planning, 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, director of graduate studies in regional science in the Department of City and Regional Planning. “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.”

The workshop explored 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 helps keep 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 in 2018.

Cornell panelists included Donaghy; Iwan Azis, Ph.D. ’84, visiting lecturer in city and regional planning and former director of economic policy coordination for the Asian Development Bank; and regional science master’s student Louis Chua.

Presenters addressed a variety of issues:

  • 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 who’s currently 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, Italy, considered how the curricula of graduate programs in economics can be modified to equip the next generation of macroeconomists with the tools to analyze, explain and address future crises.

Donaghy hopes presentations and panel discussions from the workshop will help generate new pedagogical material for graduate-level macroeconomics classes and seminars.

The other panelists and speakers were: Jingwen Li and Timothy Mount of Cornell; Giorgio Calcagnini, University of Urbino, Italy; Geoffrey Hewings, University of Illinois at Urbana-Champaign, Federal Reserve Bank of Chicago; Bernardo Maggi and Enrico Saltari, University of Rome; and Clifford Wymer, University of Rome, who is retired from the International Monetary Fund.

Patti Witten is a writer for the College of Architecture, Art and Planning.

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