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Macroeconomics and Financial History (MACROHIST) Project

 

MACROHIST is a Marie Curie Initial Training Network (ITN), funded under the European Union’s Seventh Framework Programme and running until August 2017. It consists of a network of seven leading European academic and research institutions of which the Graduate Institute is the lead coordinator under supervision of Professor Marc Flandreau.

At the Graduate Institute, MACROHIST is hosted by the Centre for Finance and Development, and for its training actions is a partner to  the Department of International Economics and the Department of International History.

In addition to the Graduate Institute, there are six other partner institutions in the MACROHIST initial training network:

    University of Oxford (UK)
    Humboldt University, Berlin (Germany)
    London School of Economics and Political Science (UK)
    Sciences Po, Paris (France)
    Universidad Carlos III Madrid (Spain)
    Université Libre de Bruxelles (Belgium)

 

Objectives
The current macroeconomic and financial crisis has given rise to a vigorous debate about the state of macroeconomics, and the macroeconomic training which graduate students (and undergraduates) are receiving. Importantly, among the voices arguing most strongly for a change in the way that young macroeconomists are trained are those coming from the ultimate employers of these students, both in the private and the public sector. Employers are increasingly complaining that young macroeconomists don’t understand how the financial system actually works, and are ill-prepared to think about appropriate policies at a time of financial crisis.

Knowledge of economic and financial history is crucial in thinking about macroeconomic problems and the financial sector in several ways. Most obviously, it forces students to recognize that major discontinuities in economic performance and economic policy regimes have occurred many times in the past, and may therefore occur again in the future. These discontinuities have often coincided with economic and financial crises, which therefore cannot be assumed away as theoretically impossible. A historical training would immunise students from the complacency that characterised the “Great Moderation”, a period that saw not only stable and low inflation, and respectable growth, but a massive build-up of credit and a series of asset price bubbles. Zoom out, and that swan may not seem so black after all.

A second, related point is that economic history teaches students the importance of context. As Robert Solow pointed out, “the proper choice of a model depends on the institutional context”. In the context of macroeconomics, statements that may be true in a floating exchange rate environment may not be true in a fixed rate environment; policies that may make sense under capital controls may look very different under conditions of capital mobility; multipliers may look very different depending on the size of the economy, the monetary and exchange rate environment, and on whether or not the economy is at the zero interest rate lower bound. One simple set of policy prescriptions is unlikely to be correct all the time: drawing conclusions based on data taken from the so-called “Great Moderation” period leading up to the present financial crisis, and presuming that these will necessarily hold in all circumstances, is a recipe for disaster. Studying economic history can help young economists think about whether and when to exchange one set of policies for another, and above all it can broaden their minds, by giving them a sense of how many different economic environments there have been in the past, even over the course of the last century.

Third, economic history is an unapologetically empirical field. Good economic historians are well-trained economists, but they are ultimately interested in explaining empirical phenomena: long run growth in individual countries or groups of countries, technical change, business cycles, financial crises, and so on. Doing economic history thus forces them to add to the technical rigour of their graduate programmes an extra dimension of rigour: asking whether their explanations for historical events actually fit the facts or not. An exposure to economic history thus leads to an empirical frame of mind, and a willingness to admit that one’s particular theoretical framework may not always work in explaining the real world. These are essential mental habits for young economists wishing to apply their skills in the work environment.

Young economists therefore need training in economic and financial history, and this is especially true of young macroeconomists. At the same time, students of economic history need exposure to the techniques of modern macroeconomics and financial economics. Economic history cannot make a useful contribution to mainstream economics if it is ghettoized; its students will not have an impact if they gravitate towards economic history in the hopes that this will enable them to avoid the rigorous technical training of a modern economics graduate programme. On the contrary: it is only by engaging with modern, mainstream models that they will be able to participate in a shared intellectual programme which is now increasingly recognized as being essential: developing a new and richer macroeconomics for a post-crisis world.

The major training objective of MACROHIST is thus to bridge the gap in training which exists between macroeconomists, who may be naïve about the real world, and largely ignorant of its history; and economic historians studying macroeconomic and financial history, who may be naïve about the theoretical and statistical tools which are required to make sense of a complex empirical reality.

Training
MACROHIST aims to provide a new generation of European doctoral students with expertise in both macroeconomics and financial history.
The training will combine coursework and methodological tools taught at the academic nodes with on-site training in project management and internships/secondments with private and public sector partners.

The MACROHIST research agenda is organized around three work packages:
1) Crises
2) Macroeconomic policies and policy regimes
3) Finance and growth
Macroeconomics and economic history students will be exposed to the training provided by both subdisciplines and will be involved in cross-disciplinary research projects which combine theoretical and empirical sophistication, on the one hand, with a historical sensitivity to context on the other.

The distinguishing features are:

(a) formal coursework with emphasis on rigorous empirical methods and exposure to other disciplines in PhD courses, workshops and summer schools;
(b) mentors/supervisors will be appointed for each researcher hired by the network
(c) internships with private and public sector partners
(d) opportunities to forge relationships with faculty and students throughout Europe through exchanges, workshops, and virtual networks