Macroeconomic Models – A review and future outlook

There are two interesting documents on the topic.

One is this review of central bank models written by Bank of Japan economists in Jan 2009. Hence, it misses all the recent criticisms on macroeconomic models doing rounds now. Second, is this superb article in WSJ which looks at how three professors (only one economics one) are trying to build better macro models for future.

First the BoJ review which looks at what kinds of models central banks use (suite of models) and focuses on BoJ models. It explains models through Pagan frontier (Pagan is an economist at Bank of England). Pagan Curve looks at two variables – Theoretical coherence and Empirical coherence. So you have a frontier on which all these models lie. Some are more inclined towards theory some towards empirical work. Ideal model should try to balance these two objectives. Very neat way of analysing. Based on this you have following models:

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Michael Spence on managing exchange rates

ET does an interview of Michael Spence. He says countries should be worried over the exchange rate levels given flood of Dollar liquidity be Fed:

Issues with Consumer Financial Protection Bureau

St Louis Fed held a seminar on Consumer Financial Protection Bureau.

James Bullard raised some issues with CFPB’s organisation structure. It is to be housed under Fed and funded by Fed. He says first it is not understood how will it be organised under Fed. Second, it will look at all other financial firms whereas Fed looks at selected firms. Then it also needs to set up separate departments like research etc