In order to further progress on the new Handbook of Macroeconomics, which will be published next year, Harald Uhlig and I, the co-editors of the Handbook, hosted two conferences at Stanford and Chicago in April. Harald and I attended both conferences—three days in each venue—where we heard distinguished macroeconomists present 35 draft chapters and critical commentary on each of those chapters. With many chapters having coauthors there were about 85 presentations in all–way too much to summarize in a short blog though Harald and I plan to write such a summary in the volume’s introduction. Many of the preliminary drafts are posted on the conference web sites at the Hoover Institution at Stanford and and the Becker Friedman Institute at Chicago. Comments for the authors are welcome as final drafts will be prepared in the coming months.
The conferences displayed an amazing range of new and different ideas, which is understandable given all that has happened since the first Macro Handbook was published in 1999. The range of topics appeared surprisingly wide, extending well beyond traditional macro, and including such topics as Family Macro, Natural Experiments in Macro, Environmental Macro, and the Macroeconomics of Time Allocation. Of course there were both real business cycle chapters (Prescott, Ohanian, Hansen) and monetary business cycle papers (Christiano, Eichenbaum, Trabandt) and treatments of macro-prudential policy and fiscal policy at the zero lower bound on interest rates. There were also the essential chapters on the latest and estimation and solution (in continuous and discrete time) techniques, and well as helpful displays of the key facts of economic growth and economic fluctuations both at the aggregate and individual level. The representative agent was not the only type of agent represented!
Though the new Handbook is by no means finished, there is already a very noticeable difference from the first Handbook. Perhaps the most important is that many authors included examinations of the role of financial frictions and the financial sector more generally in macro models. Of course, since the Global Financial Crisis and the Great Recession most people view the lack of such frictions to be a major gap in macro, but how that gap will most effectively be filled in remains to be seen.
The formal models in the chapters in the Handbook can help answer that question in ways that informal policy debates cannot, and I hope that this may be an important accomplishment of the Handbook in the end. Between the two conferences I attended an IMF conference in Washington, Rethinking Macro III, and participated in such debates (one with Ben Bernanke) which, while valuable, could not settle key issues without such formal modelling work as I think Olivier Blanchard made clear in his summary.
The first Handbook had the famous chapter by Bernanke, Gertler and Gilchrist on the financial accelerator, but the ideas in that research now appear in many chapters. One surprising finding,—clear in the Linde, Smets, and Wouters chapter—is that when you add such financial factors to the mainline macro models used at central banks, they do not help that much in explaining the financial crisis. To paraphrase simply, they can change the financial crisis from something like a 6-sigma event in the models to a 3-sigma event—an improvement but not ready to help much help in the next crisis. Look for more surprising and even debate-settling findings in future drafts.
Here is a group picture of authors and discussants from the conference at the Becker Friedman Institute in Chicago
and here is one from the Hoover Institution at Stanford.