I did an interview for the Economics Rockstar podcast, thanks to Frank Conway for the chance to have the chat.
Models in economics and finance typically use time series graphs as model outputs. In the light of the recent crisis and policy makers’ sometimes-flawed approaches to the resolution of the crisis, this paper argues simple line graphs do not contain enough information to help policy makers adequately understand the evolution of their economy. We generate new graphical representations using the example of the Irish economic crisis based on a new model of the Irish economy, built from its national accounts. These visualisations are newer, data-dense outputs of a new class of accounting models. In these accounting models the many connections between the real and financial sides of the economy are much more explicit, the impact of austerity on the Irish economy post-2009 are much more transparent, and the resulting recovery is clearly visible in dashboard form to policymakers.
Our new working paper is out in the Levy working paper series:
We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.
We've updated the paper, it can be accessed here. The abstract is below.
The global financial crisis has forced standard macroeconomics to re-examine the plausibility of its assumptions and the adequacy of the policy prescriptions flowing from those assumptions. We believe a renewal of macroeconomic thinking and macroeconomic modeling is possible by recognizing that our economies should be analyzed as complex adaptive systems. A coherent and exhaustive representation of the inter-linkages between the real and financial sides of the economy is vital as well. We propose a macroeconomic framework based on a novel combination of the Agent Based and Stock Flow Consistent approaches. This paper presents a benchmark model for this innovative approach. Our model depicts an economy with capital and credit in which different types of agents locally interact on different markets. We provide a detailed representation of individual agents’ balance sheets, ensuring the model accounting consistency at the micro, meso, and macro levels. We analyze the properties of our simulated economy under different configurations of agent heuristics, focusing in particular on the role of credit and investment. We explain in detail the logic followed to calibrate and validate the model. Results show that our benchmark model is able to reproduce many stylized facts observed in real world, thus representing a good starting point to test -- in the next works -- different economic policies and institutional setups. Finally, the relatively simple and flexible structure of the model opens up many possibilities for development of the framework along different lines, thus providing a fertile soil for new applications.
PICTURE this. It is 3am on the 12th of July, 1972. 43 years ago. The gardens of the Benedictine Monastery of Glenstal Abbey in rural Limerick are quiet.
A bus carrying Belfast women and children arrives at the monastery, fleeing the conflict taking place on the streets where they live. They have few clothes or other possessions with them. So on they drive, through the dark, with nothing, to Glenstal Abbey, as their homes burn behind them and riots erupt on the streets their children played along. When they arrive, the locals will call them the Northern Refugees.
Imagine this. The monks get a phone call in the mid-afternoon of the 11th. The bus is in motion. They have less than a day to prepare the empty dormitories of the boy’s boarding school housed within the Abbey, order food, and figure out what to do with that many people for what might be up to a month. The monks have no idea what awaits them.
Remember this. The burnings of the North and the battle of the Bogside in 1968 and 1969 had taught a generation of Catholics and Protestants to leave their homes as tensions ran high between Catholic nationalists, Protestant loyalists and the RUC in the run up to the celebrations of the 12th.
The annual marches on the 12th of July by the loyalist Orange Order, celebrate 1688’s Glorious Revolution and the victory by William of Orange over the Catholic King James II at the Battle of the Boyne. The celebrations had become touch points in a cycle of violence which would come to be known – much later – as the Troubles, an anodyne name for a turbulent and volatile period in sectarian relations.
Like many great movements of history, the Troubles began with civil disobedience in the late 1960s, and would end after protracted negotiations with the Good Friday Agreement. In the meantime ordinary people have to try and cope as best they could.
Escape was the most logical option. Escaping to a monastery in rural Limerick, not so much.
Think of this. The monks of Glenstal are, to put it mildly, not equipped to cope with the long term residence of several hundred women and children, the youngest of whom was only two weeks old at the time. Some of the children are sick.
A local nurse takes one child to her own home to give her mother a break and bring her back to health. The monks rise to the challenge of accommodating and entertaining them.
The Civil Defence unit in Doon drafted in help from the surrounding towns and packages of food, toys, clothes, even prams begin to rain down on the monastery from towns and districts including Murroe, Boher, Doon, Newport, Cappamore, Killaloe, Limerick, and Castleconnell.
The parents and children are stunned by the local generosity, later writing letters of thanks to the monks now recorded in the Annals of Glenstal.
Consider this. On the 8th of August 1972, the last of the refugees returned to their homes, some of which had been burnt during their time away. Perhaps the stay at Glenstal saved some of their lives. According to Bew and Gillespie’s Chronology of the Troubles 1968—1993, 1972 was the bloodiest year in the conflict.
In one day, July 21, 1972, as the children of the Northern Refugees played in the fields around Glenstal Abbey, within the space of 75 minutes, 22 bombs exploded in Belfast. The bombs of 21 July were planted by the Provisional IRA. The Shankill Butchers are believed to have killed their first victim, a Catholic, that same day. Ten days later the British army began one their biggest operations of the Troubles, Operation Motorman, when they cleared ‘no-go’ areas in Belfast and Derry. The period during, and either side, of the refugees stay in Limerick is a microcosm of the whole conflict.
It has been 43 years since the Northern Refugees went home. They have grown up through the period we now call the Troubles, and are most likely in their fifties and sixties now.
I’d like to tell their story for an RTE documentary I’m making. I want to understand what happened when they arrived here in Limerick a little better, and I want to hear their stories.
If you remember those times, or happen to know these people, please drop me an email at firstname.lastname@example.org
Published on: http://www.limerickleader.ie/news/business/business-news/rte-to-tell-story-of-glenstal-s-succour-to-refugees-in-1972-1-7077778#ixzz3sJnFkhB7
Welcome back to UL for the autumn semester! If you're studying EC4004, Economics for Business, the module outline, notes, and assessment details are on the module page here, and mirrored on SULIS if you like using that service.
If you're studying EC6021, Macroeconomic theory, the module page is here. Again, there's a SULIS mirror for this page.
If you're studying Mathematics for Economists, the module page is here.
Using the Eurosystem Household Finance and Consumption (HFCS) data, this paper identifies the key differences in borrowing behaviour between core and peripheral nations. As such, we focus on non-collateralized debt such as credit card loans, bank overdrafts and other forms of non-collateralized debt, which reflect daily borrowing behaviour more closely than does mortgage debt. We examine the differences in levels and prevalence of these debts, and break down these differences into two major components: financial perceptions and the economic environment. We aim to explain to what extent these influences contribute to the differences in debt ownership and levels of holding between core and peripheral countries in Europe. We found that differences in financial perceptions do contribute to the differences in debt in a significant way, while the economic environment contributes little to this outcome. Households in the European periphery are much more conducive to debt if they have the same financial perceptions as those in the core countries in Europe.
Sir, I read with interest Prof. Hans-Werner Sinn’s assertion (“Why Greece Should Leave theEurozone”, July 24, 2015) that Ireland’s austerity effectively ended in 2010. As an Irish citizen and an economist I can tell you it didn’t. Dr. Sinn says the bubble burst in 2006, it was 2007. Dr. Sinn says no fiscal rescue was available—there was, but it wasn’t enough. Irish debt relative to GDP went from about 35% in 2006 to about 124% in 2013. Dr. Sinn says Irish wages fell drastically. Not so. According to Ireland’s Earnings, Hours and Employment Costs Survey, private sector wages fell by about 4% while public sector wages fell by about 3% over the crissis. Not nothing, but hardly a drop justifying the term ‘drastic’. What actually happened was employers reduced their wage bills by reducing employment and average hours worked per employee. This is important because what is really going on in the Irish economy is a Keynesian adjustment in quantity of labour and not a neoclassical wage-rate adjustment, implying the ‘cure’ for Ireland’s problems was not so much a supply-side set of ‘reforms’ but a (an?) increase in demand, first from the rest of the world thanks to Ireland’s remarkable openness as an economy, and then from a demand response following the end of austerity in 2013--not 2010. The Greek economy is nowhere near as open as the Irish economy, and, as measured by the cyclically adjusted structural balance, has already endured more than double the amount of austerity than Ireland. The Irish story isn’t a price adjustment, it’s a quantity adjustment. Dr. Sinn gets the most important part of his diagnosis wrong. His prescription is likely to kill the Greek patient. I’m not calling him a quack but if it walks like a duck, etc.
Published in the NYT on the 11th of August.
I wrote a short piece on how one might make a bit of dosh in a low growth environment for RABO here.
Today I launched a report commissioned by Early Childhood Ireland called Footsteps for the Future, looking at appropriate and well costed policies which could, over time, deliver real changes to the system of early childhood education we have in this country. A summary of the report and a full download is here.
Together with Dan O'Brien and Constantin Gurdgiev I gave evidence to the Joint Committee on Finance, Public Expenditure and Reform, and a pdf of the opening statement is here.
Today I spoke at the IIEA on the theme of Consolidating Ireland's Recovery – What Next?, with EU Commissioner Pierre Moscovici, Minister Dara Murphy and Bank of Ireland's Loretta O'Sullivan. The event was chaired by Dan O'Brien and was really informative. Slides and video will be up here in due course.