Mark Setterfield

Path Dependency, Hysteresis and Macrodynamics

This chapter explores the meaning and application of concepts of path dependency in macrodynamics, with a particular focus on hysteresis. It is argued that hysteresis is a particular type of (rather than a synonym for) path dependency, and that the concept emerges from features of the adjustment dynamics of economic systems, rather than the nonuniqueness of equilibrium. Distinctions are made between stating (or asserting) hysteresis, characterizing hysteresis, and providing a model of hysteresis. Concrete examples of appeals to hysteresis in macrodynamic analysis are used to illustrate these distinctions. Finally, a case is made for retaining linear unit/zero root models of ‘hysteresis’ in macrodynamic analysis, as a useful first approximation and alternative to traditional equilibrium analysis.

Macroeconomics, endogenous money and the contemporary financial crisis: a teaching model

This paper develops an undergraduate macroeconomics teaching model that features endogenous money and an explicit account of commercial bank behaviour. It therefore transcends common shortcomings of existing teaching models based on either IS-LM or its successor, the New Consensus. The model is used to explain the recent financial crisis and its macroeconomic impact, and to analyse the effects and potential shortcomings of monetary and fiscal policy responses to the crisis.

A Simple (and Teachable) Macroeconomic Model with Endogenous Money

According to Romer (2000), the IS-LM framework has outlived its usefulness as the basic model for teaching undergraduate students about short-run macroeconomic fluctuations. This is because central banks no longer use monetary aggregates as the instrument of monetary policy (as per the assumptions of the IS-LM model), but instead conduct policy by manipulating interest rates (see also Blinder 1997; Taylor 1997; Walsh 2002). Romer’s solution to this problem involves replacing the LM curve with an MP (monetary policy) curve that describes how central banks manipulate interest rates in response to macroeconomic outcomes such as variations in inflation and/or the level of real economic activity. The result is what has come to be known as the ‘New Consensus’ model, in which the central bank varies the interest rate in order to anchor the rate of inflation at its chosen target value, while real activity is governed by a natural rate of unemployment or NAIRU.1 Simple and teachable variants of this model have already been developed by, for example, Taylor (2000), Carlin and Soskice (2005), and Jones (2008).

A Guide for Submissions to the JEE Content Section

The authors provide a guide to the thinking of the editorial collective for the Content section of the Journal of Economic Education (JEE). They discuss the type of papers they are looking for, what in their view constitutes a good paper, and how their review process works. They also provide some examples of what works (and what does not). Although they focus specifically on Content articles for the JEE, many of the general issues discussed may carry over to other sections of the JEE and to journals more generally.

Macroeconomic Theory and Macroeconomic Pedagogy: An Introduction

The purpose of this book, as its title suggests, is to reflect on the relationship between contemporary macroeconomic theory and prevailing techniques and practices in undergraduate macroeconomics education. Its primary concern is with the development of simple macroeconomic teaching models in light of recent developments in macroeconomic theory, with an eye to promoting a better understanding of current real world issues. As such, the chapters that follow focus on ‘content’, i.e. what students are taught and its relationship to macroeconomics as it is currently perceived and practised by the profession, rather than methods of and strategies for instruction.

Economic Modelling and the Concept of Equilibrium

There exist a number of definitions of the concept of economic equilibrium. One idea of equilibrium is that of a situation characterized by ‘offsetting forces’ — as, for example, when supply equals demand. A somewhat broader conception defines equilibrium as any state of rest which displays no endogenous tendencies to change over time.1 There also exist a variety of model specific definitions of equilibrium. For example, in certain theories of the business cycle, equilibrium is characterized in terms of the way that individuals form conditional expectations.2

A Brief History of the British Economy since 1780

The history of the British economy has drawn the attention of many leading scholars. Interpretations of distinct sub-periods of this history have been extensively debated — for example, the notion of a ‘Great Depression’ versus that of an ‘Edwardian climacteric’ in the late nineteenth century (Richardson, 1965b; Saul, 1969; Matthews et al., 1982) and the role of new industries in the 1930s economic ‘recovery’ (Richardson, 1962; Dowie, 1968). Others have devoted attention to the formidable task of compiling accurate data to facilitate the economic interpretation of British history (for example, Deane and Cole, 1962; Feinstein 1972; Mitchell, 1988).

The Supply Side and Macroeconomic Performance II: Institutional Evolution

In recent years, renewed interest has been shown in both the importance of institutions for the functioning of capitalism, and the impact of capitalism’s dynamics on the nature of institutions.1 However, the common interests of this literature conceal profound methodological differences, which in turn give rise to substantially different conclusions with regard to the origins, nature and role of institutions in a capitalist economy.

The Supply Side and Macroeconomic Performance I: Technological Evolution

In Chapter 3, it was suggested that Kaldor’s model of cumulative causation can be interpreted as a first step towards understanding macroeconomic dynamics under conditions of hysteresis. Recall that our characterization of this model in equations [3.1]—[3.4] can be summarized as: n n