Monday, April 21, 2014

How to think like a macroeconomist

Macroeconomists generally interpret the data they see as the unfolding of a Radner equilibrium, often with distortions, such as taxes, and with some incompleteness or dysfunction in the set of IOU markets.

This is from Kartik Athreya's Big Ideas in Macroeconomics, which is superb (and yes, he explains Radner equilibrium for the lay reader). I wish I'd had this book when I was preparing for PhD comprehensive exams, and in the future I will recommend it to anyone who wants to consume the writing of economists. I will say more about it later; it has much to absorb but I am nearly finished.

UPDATE: My full review of the book is here.

1 comment:

  1. Thanks much Ryan. This was a thorough and clear review. On specifics, it’s hard to disagree that firm dynamics and heterogeneity might have deserved more space. One possible route would have been to lower the detail on the preparatory microeconomics, and add more on firms. I erred on the side of the former since I anticipated that many lay readers (journalists especially) would wanted more justification for the type of analysis we do, but I can see it not being the only call.

    Re: housing—indeed. I liked that Iacoviello made the point he did—and our understanding of housing—and especially its relationship to other credit markets, was just not deep enough, but is getting deeper fast (judging by the huge number of papers I have seen presented in the past four years). I also think it’s important to appreciate the progress that has occurred. After all, debt, especially of the short-term variety is a (the?) key, and as I stress in the book, until Townsend (1979) we lacked a theory for it at all. I’d add also that one sub-text (since I don’t make it explicit all over the place) I hope readers are struck by is the speed with which the profession reacts to its theories’ collisions with data. Starting with stagflation, and then the equity-premium puzzle, and most recently, the Shimer puzzles, it is obvious the extent to which macroeconomists seek models consistent with data. And the competition to be first in these races is, as you know, intense. Even theoretically oriented people are data-driven, not hermetically sealed off from the facts.

    I’d also be personally delighted if people came away with a sense of the extent to which we grapple with inequality and heterogeneity. A nice thing is that some of that work (Victor’s and Tony’s) is surfacing (a decade or more late) to the broader public because of the buzz around Piketty’s book.

    Again, thanks for reading the book so carefully.