Professor John Moore recently conducted an interview with the Sveriges Riksbank Research Division regarding the work undertaken on the MacCaLM grant. The interview followed Sveriges Riksbank’s annual conference in September 2016, held in collaboration with MacCaLM. In the article, Professor Moore discusses the founding of MacCaLM, the research aims of the project and why these aims are so important.
The workhorse macroeconomic model, as taught to graduate students and as used in many central banks and treasuries, does not have a well-articulated financial sector. Consequently, issues such as the drying-up of credit markets, as experienced during the crisis, can play no role in this model. Likewise, the crisis has thrown into relief the poor performance of current models of labour markets. For example, the relatively muted response of employment and unemployment in the UK to the output slowdown has been a major surprise; and nominal wages across most industrialised economies have also appeared surprisingly unresponsive to increased unemployment. In short, there is much theoretical work to do, on rethinking macroeconomic models from scratch. The crisis has been a shock of such magnitude that, with the type of detailed datasets now available, there is the prospect of real advances in our understanding.