Transcript Macroeconomics after the Crisis (slides)

TAKING SERIOUSLY
FINANCE
Macroeconomics after the
crisis
Robert BOYER
Conference “Toward an alternative
macroeconomic analysis of microfoundations,
finance-real economy dynamics and crises”,
Budapest, September 6-8th, 2010
INTRODUCTION
• The core arguments of this presentation
The failure of contemporary macro-modeling
dates back to the inadequate formalization of
General Theory
The irrelevance has been widening with the
neo-Walrasian conception embedded into RBC
and DSGE models
This is especially detrimental since the present
crisis largely originated from a cluster of
financial innovations with a large destabilizing
role at the macro level
There is an opportunity for developing new
macroeconomic paradigms that would build
upon:
An updating of political economy analyses of
financial crises
A clear compatibility with the major stylized facts
exhibited by the history of financial crises
The formalization of some robust mechanisms
linking finance to economic activity.
The presentation proposes at least four
strategies:
Modeling the contemporary finance-led regimes
within an institutional macro theory
Formalizing the resilience and crisis of financial
networks
Extending a model of stock market bubbles to the
banking system and the real economy
Learning and forgetting the origins of crises at the
micro and institutional levels.
I. The failure of
contemporary macromodeling dates back to the
inadequate formalization of
General Theory
Figure 1 – Half a century in macroeconomic theorizing
II. The irrelevance has
been widening with the
neo-Walrasian conception
embedded into RBC and
DSGE models
Table 1 – From the failures of DSGE models to new
research agenda
III. This is especially
detrimental since the
present crisis largely
originated from a cluster of
financial innovations with a
large destabilizing role at
the macro level
Figure 2 – The recurrence of bubbles and financial crises:
a synthetic index
Figure 3 – Growth of Assets of Four Sectors in the
United States (March 1954 = 1) (Log scale) (source: Federal
Reserve, Flow of Funds, 1954-2009)
Figure 4 – Household Sector Leverage and Total Assets
(Source: U.S. Flow of Funds, Federal Reserve, 1963-2007)
Figure 5 – Broker Dealer Sector Leverage and Total Assets
(Source: U.S. Flow of Funds, Federal Reserve, 1963-2007)
Table 2 – Various research programs facing the major
stylized facts revealed by the present crisis
IV. An updating of political
economy analyses of
financial crises
Table 4 – Back to the political economy of financial crises
V. Taking into account
some robust mechanisms
linking finance to
economic activity
1. The procyclicity of credit and economic activity
Figure 6 – US Private Demand Growth and the Credit impulse
2. The Yield Curve and Future Economic Activity
Figure 7 – Forecasted probability of recession based on the slope
of the yield curve 4 quarters earlier
3. The related Mechanisms: Impact upon the Shadow
Banks Credit Supply via Profitability
Table 3 – A macro financial intermediary VAR, US 1990
Q3 – 2008 Q3
4. The impact of financial wealth upon the real economy
Figure 8 – U.S. stock market and productive investment
(% of GDP)
Figure 9 – U.S. Firms debt and stock market valuation (%
of GDP)
Figure 10 – U.S.: total debt and financial and real estate
wealth of household (% of real disposable income)
Figure 11 – U.S.: Total subprime credit (billion dollars)
and housing prices (100 = 2002.1)
VI. Modeling the
contemporary finance-led
regimes within an
institutional macro theory
Figure 12 – An institutionally grounded macro modeling:
A given configuration of a capitalist economy
Figure 13 – The Channels of finance to real economy in
the era of finance led capitalism
VII. Formalizing the
resilience and crisis of
financial networks
Figure 14 – The financial system as a
network of assets and viabilities
Figure 15 – The non linear impact of
connectivity upon the default of banks
Figure 16 – Capital buffers of
banks may counteract the
risk of default
Source: Gai Prasanna, and Sujit Kapadia (2010), p. 11, 22, 24.
VIII. Two other strategies
 Extending a model of stock market
bubbles to the banking system and the real
economy
 Learning and forgetting the origins of
crises at the micro and institutional levels.
CONCLUSION
C1 – The present crisis has revealed the many
structural deficiencies of DSGE models:
representative agent hypothesis, full
rationality,….
C2 – Nevertheless its main weakness might well be
the absence of a fully fledged financial system.
C3 – This has been taking into account by the most
recent researches within the DSGE paradigm.
Can it succeed?
Table 4 – Recent extensions of GSGE models: at last
“Banks matter”
C4 – The neo-Walrasian legacy of these models
makes problematic the rescue of the DSGE
approach: basic neutrality of money and
underlying hypothesis of financial markets
efficiency.
C5 – This opens an opportunity for the emergence
of old and new alternative paradigms but there
are many of them.
C6 – A discriminating criteria should be their
respective ability to incorporate the basic
mechanisms linking finance to real economy,
while reproducing the major stylized facts
exhibited by long run history of financial
crises.
C7 – A possible dilemma:
The search for a quite general model that
could fit with all the previous financial crises,
only the value of some parameters
A special model coping with the specificities
of the present crisis: the clustering of
powerful financial innovations with strong
negative externalities upon macroeconomic
stability.
Thanks for your attention and
patience
Robert BOYER
CEPREMAP 140, Rue du Chevaleret 75013 PARIS (France)
+ 33 (0)1 40 77 84 12
 [email protected]
Site WEB : http://www.jourdan.ens.fr/~boyer/