Teaching macro after the crisis

Olivier Blanchard, pound for pound one of the best macroeconomists out there, is revising his famous textbook. His experience at the IMF has forced him to reconsider the basic short- to medium-term models we teach.

In particular Blanchard wants to keep the ‘IS’ curve, which relates savings to investment, and mostly dump the ‘LM’ curve, which supposedly connects the demand for real balances to the interest rate via the money supply. He also wants to ditch the aggregate supply and demand model, which relates changes in aggregate demand and supply to employment and expectations over the medium term.

Blanchard wants to scrap this and connect the IS curve to an older idea, the Philips Curve, which will be paired with a new curve, called the MP curve in many formulations. Karl Whelan, formerly of this parish, has a nice exposition of the whole IS-MP-PC system here (.pdf). This should replace the older IS-LM and AS-AD formulations over time, but for that to happen, lecturers will need to update their notes, and textbook authors will need to update their offerings. We know Blanchard is doing his bit. What about our Irish colleagues?

A while ago Brian Lucey and I looked at how much the teaching of economics had changed in Ireland since the crisis. Not much, was the short answer. The presentation of our initial results is here (.ppt).

The next thing to do is to change how economists are taught about finance. I have quite a few thoughts on this, perhaps best expressed in my own teaching about financial economics, but Blanchard’s suggestions around the introduction of more than one interest rate reminds me a lot of this classic paper by Jack Treynor, and maybe that can be worked in, in a sensible way.

Either way, Blanchard’s textbook will be top of my recommended reading list when it comes out.

Tom Kettle, 1880 – 1916

In 1909 Tom Kettle was appointed the first Professor of the National Economics of Ireland at University College, Dublin.
He was in Belgium running arms for the National Volunteers when the war broke out in 1914. What he perceived as the barbaric Prussian assault on European civilization prompted him to apply for a commission with the Royal Dublin Fusiliers, which he was awarded in 1916.
He was killed in action at Ginchy (Picardy) during the Battle of the Somme on 9th September 1916.
In the spring of 2006 the late Gerry Barry, the RTÉ broadcaster, organized a public meeting (in the former House of Lords chamber at College Green) to mark the 90th anniversary of Kettle’s death. He asked me to contribute a piece on Kettle’s work as an economist.
Ten years on, and a century after Kettle’s death, I thought readers might be interested in the brief essay I wrote for the occasion.

More details of his life are available in the excellent Wikipedia article on him:https://en.wikipedia.org/wiki/Tom_Kettle.

An intellectual winter

TheJournal.ie reports on a speech given by President Higgins at the University of Chicago this evening.

PRESIDENT MICHAEL D Higgins has told students at the University of Chicago that the teaching of economics is going through “an intellectual winter” because it doesn’t take account of the social impacts of policy.

“The recent economic and financial upheavals have thrown a glaring light on the shortcomings of the intellectual tools provided by mainstream economics and its key assumption regarding the sustainability of self-regulating markets (and, more particularly, of largely unregulated global financial markets),” he told the assembly.

The prepared text for the speech is available on the President’s website.  A recording of the actual delivery and subsequent Q&A session is available here.

Economics and Finance Teaching Before and After the Crisis

Brian Lucey and I conducted a survey of all university teachers of economics and finance in December 2013. A presentation of our findings is here (.pdf). Brian’s thoughts are here.

The main results from the sample of respondents are:

  • Teaching has not changed much in response to the crisis.
  • Attitudes to newer, or more critical material appear mixed at best.
  • Respondents emphasised the need for broader contextualisation and increased mathematical competence.We find it hard to see how to reconcile these findings.
  • Irish Economic Policy Conference 2014: Economic Policy after the Bailout

    Organised jointly by the ESRI, Dublin Economic Workshop, UL, and UCD’s Geary Institute, this year’s policy conference (see previous years here and here) will be on the theme of economic policy after the bailout. This conference brings policy makers, politicians, civil servants and academics together to address this question of national importance. The venue will be the Institute of Bankers in the IFSC. (Click here for a map).

    Date: 31st January 2013

    Venue: Institute of Bankers, IFSC


    9:15 – 10:45: Plenary: The Impact of the Crisis on Industrial Relations

    Chair: Aedín Doris (NUI Maynooth)

    • Kieran Mulvey (Labour Relations Commission) Prospects for Pay and Industrial Relations in the Irish Economy
    • Shay Cody (IMPACT Trade Union) “The impact of the crisis on industrial relations – a public service focus”
    • Michelle O’Sullivan/Tom Turner (University of Limerick) “The Crisis and Implications for Precarious Employment’”

    10.45-11.15: Coffee Break

    11:15 – 12:45: 2A. Migration and the Labour Market

    Chair: Philip O’Connell (UCD Geary Institute)

    • Piaras MacÉinrí (UCC) ‘Beyond the choice v constraint debate: some key findings from a recent representative survey on emigration’
    • Peter Muhlau (TCD) “Social ties and the labour market integration of Polish migrants in Ireland and Germany”
    • Alan Barrett (ESRI & TCD) and Irene Mosca (TCD) “The impact of an adult child’s emigration on the mental health of an older parent”

    2B. Economics: Teaching and Practice

    Chair: Ronan Gallagher (Dept of Public Expenditure and Reform)

    • Brian Lucey (TCD): “Finance Education Before and After the Crash”
    • Liam Delaney (Stirling): “Graduate Economics Education”
    • Jeffrey Egan (McGraw-Hill Education) “The commercial interest in Third Level Education”

    12:45 – 1:45: Lunch Break

    1:45 – 3:15: 3A. Health and Recovery

    Chair: Alex White, TD, Minister of State

    • David Madden (UCD) “Health and Wealth on the Roller-Coaster: Ireland 2003-2011”
    • Charles Normand TCD) and Anne Nolan (TCD & ESRI) “The impact of the economic crisis on health and the health system in Ireland”
    • Paul Gorecki (ESRI) ‘Pricing Pharmaceuticals: Has Public Policy Delivered?”

    3B. Fiscal Policy

    Chair: Stephen Donnelly TD

    • Seamus Coffey (UCC) “The continuing constraints on Irish fiscal policy”
    • Diarmuid Smyth (IFAC) ‘IFAC: Formative years and the future’
    • Rory O’Farrell, (NERI) “Supplying solutions in demanding times: the effects of various fiscal measures”

    3:15 – 3:30: Coffee Break

    3:30 – 5:00: Plenary: Debt, Default and Banking System Design

    Chair: Fiona Muldoon (Central Bank of Ireland)

    • Gregory Connor (NUI Maynooth) “An Economist’s Perspective on the Quality of Irish Bank Assets”
    • Kieran McQuinn and Yvonne McCarthy (Central Bank of Ireland) “Credit conditions in a boom and bust property market”
    • Colm McCarthy “Designing a Banking System for Economic Recovery”
    • Ronan Lyons (TCD) “Household expectations and the housing market: from bust to boom???”

    This conference receives no funding, so we have to charge to cover expenses like room hire, tea and coffee. The registration fee is €20, but free for students. Please click here or on the link below to pay the fee, then register by attaching your payment confirmation to an e-mail with your name and affiliation to emma.barron@ucd.ie. [Block bookings can be made by purchasing the required number of registrations and then sending the list of names to emma.barron@ucd.ie]

    Please click here to pay the registration fee.

    An updated economics syllabus after 44 years would be an asset

    I don’t normally post my indo columns here, but I think readers of this blog may be interested in this one. The column follows on from last week’s discussion on this blog about the leaving certificate economics exam and its problems, but focuses on trying to secure a constructive outcome if possible.

    I think we have to recognise two sets of constraints here.

    1. Second level teachers have mixed ability classes and can’t do an undergraduate level of work in their classrooms. The objective of leaving certificate economics is not to produce economists per se but rather economically knowledgeable citizens who study this subject as one among many subjects. Teachers and textbook writers are constrained by the 44 year old syllabus, but have to do their best with what they’ve got. So teachers will be rightly annoyed when reading comments about how potentially damaging the current syllabus is in terms of economic understanding.
    2. Third level economics lecturers like Kevin, Aedin and others rightly point out the deficiencies in the current exam content and structure and feel they should have some input into what is taught and why. Both sides agree the syllabus as is is not fit for purpose.

    The solution, at least it seems to me, is to take the 2005 revised economics syllabus and update it together in a forum like the business studies teachers’ association, and present that to the NCCA. If everyone was happy enough with it, I don’t see why it couldn’t be rolled out fairly quickly with some inservice training for teachers.

    It’s one thing to criticise and point out flaws when they exist, and Kevin and Aedin in particular were right to do so. But if we actually profess to know something about this subject, I think we should have a go at helping teachers to fix those flaws, if we can.

    Leaving Certificate Economics

    Today’s Irish Independent has an article that looks at some issues Kevin Denny found from an analysis of the 2012 Higher Level Economics paper and the associated marking scheme.

    Leaving Cert paper ‘full of problems’, minister warned, Irish Independent, 17/09/2013

    Kevin has put up a post with links to his detailed comments.

    UCD MA in Economics

    I figure that some of you reading this blog may be interested in undertaking further study in economics. So this seems like a good place to provide some information about UCD’s MA programme in economics. Information about the course is available here, including an electronic version of our glossy brochure.

    I suspect some of the economists from other universities may also wish to use the site to promote their programmes, so let me briefly indicate what I see as the strengths of our programme. According to RePEc, UCD is Ireland’s leading university for research in economics, so the modules are taught by highly qualified research-oriented staff. The programme has a strong research element to it, with students doing a research thesis, for which we offer significant supports in the form of personal supervision by a staff member and classes on research methods. Finally, the programme offers a range of module options in the second term, allowing students to take advanced core modules (effectively tracking those taken in the first year of international graduate programmes) or to take a range of more applied and policy-focused modules or a mix of both. This means that students can decide at the end of their first term which track they want to go down.

    Anyone who has questions about the programme should feel free to contact me at karl.whelan@ucd.ie.

    Update: Hugh Sheehy points out in the (surprisingly entertaining) comments that our MA site isn’t clear about fees. I’ll try to get that fixed but I can tell you from this that they are €5,400 for EU students and €10,800 for non-EU students. Hefty, I know, but less than other comparable programmes.

    History of economic thought: back from the brink?

    Bright undergraduates tend to enjoy courses in the history of economic thought — I know I did — but the field is in an even more parlous state than economic history when it comes to the hiring decisions of economics departments. After all, why spend time studying the mistaken theories of the past, when you can study the superior theories that have replaced them?

    (OK, perhaps that argument doesn’t seem quite so compelling now as it did a few years ago.)

    So I was interested to see David Warsh’s report from the AEA meetings which quoted James Heckman, no less, as making the argument for history of thought courses in Economics PhD programmes. It follows the launching of a blog which promises to “engage current financial news and policy debates from the standpoint of the classics of monetary theory.”

    And Brad makes the pitch in characteristically understated fashion here.

    Class Sizes Revisited: Denny and Oppedisano

    While we are on the subject of what really matters for human welfare, many people expressed approval of the government’s decision to not allow class sizes to increase further. Kevin Denny has been talking about this issue for several years and basically arguing that the evidence on class sizes is mixed at best and that it is more of a teacher workload issue than a pupil welfare and performance issue. He has just put out a paper with colleague Veruska Oppedisano testing the effect of classsizes on pupil performance. According to his results, bigger class sizes are associated with better performance in the PISA data, even controlling for a wide range of controls and using different estimation techniques. I think Kevin would be the first to say that you should be careful about overinterpreting any individual data analysis but it certainly points away from any simplistic assertions about the effects of class-sizes.

    Notes on Banking and Central Banks

    I know this website attracts a lot of readers who are interested in banking and in monetary policy. Often, these people are regular members of the public trying to understand what’s going on in the world but starting out from a somewhat hazy understanding of the various technicalities. So (hopefully without being too patronising) I thought I’d point people towards the course webpage for my UCD module “International Monetary Economics.”

    This is a final year undergraduate module that covers banking, financial stability, monetary policy and some issues in international finance. Probably most readers will find the material pretty basic but for those of you who would like to have some material to study, it’s intended to help those with a limited background get up to speed with current events in banking and monetary policy. The focus is largely international but Irish banks get the odd shout out. This is the first week of classes (out of a total of twelve), so I’ll be adding lecture notes and other material as I go along.

    Constructive criticism of the notes is welcome. (Long deranged rants about fractional reserve banking are not.)


    I’d say this little piece by Paul Krugman, and the associated note, will end up on lots of undergraduate syllabi. Liquidity traps are boring to teach, until you find yourself in the middle of one. From an Irish point of view, however, the key section is the following:

    if some subset of the work force accepts lower wages, it can gain jobs. If workers in the widget industry take a pay cut, this will lead to lower prices of widgets relative to other things, so people will buy more widgets, hence more employment.

    The point is that the Irish are just a subset of the Eurozone workforce, and that our GDP is the equivalent of Krugman’s widgets, whose relative price can be reduced. Krugman makes the same point in a follow-up post here. Of course, devaluation would be preferable to wage (and price) cuts: it would avoid the debt deflation and rising real interest rates which Krugman talks about. But it is not an option.