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In this seminar David Vines will argue that new-Keynesian DSGE models are valuable because they encompass both the “science” of monetary policy, due to Clarida, Gali and Gertler, and real business theory, due to Kydland and Prescott. This dual nature of the models is important in three ways. First, it provides insight as to why global real interest rates are likely to return to low levels in the near future. Second, it helps us understand the history of economic thought: enabling us to untangle the controversies between monetarists and Keynesians that poisoned the 1960s and 1970s and the clashes between Hayek and Keynes the bedevilled the 1930s. Third, it means that modifications of these models, in ways suggested by Nobel-Laureate Joe Stiglitz, can give insight into the self-fulfilling nature of structural economic change. Examples, coming from the work of Trevor Swan, Maynard Keynes and the IPCC, are: the cumulative move from agriculture to industry in the process of economic development; the self-propelling nature of booms and slumps; and the remorseless adoption of new technologies, including, at present, those to do with renewable energy. Overall, these new-Keynesian DSGE models show us that we must integrate analysis of short-term macroeconomic stabilisation into any analysis of long-term economic growth, and vice versa.
David Vines is Emeritus Professor of Economics, and Emeritus Fellow of Balliol College, at Oxford University. He is also the Director of the Ethics and Economics Programme at the Institute for New Economic Thinking in the Oxford Martin School and a Research Fellow of the Centre for Economic Policy Research in London. David’s research is on macroeconomics, finance, and global economic governance. His earliest work was with the Nobel-Prize-winner James Meade in Cambridge; together they published some of the initial analysis of inflation-targeting regimes. He is currently writing about international economic cooperation, the reconstruction of macroeconomic theory in the wake of the covid pandemic, and the history of macroeconomic policymaking in Australia. David obtained a BA in Economics and Mathematics from Melbourne University, and an MA and PhD in Economics from Cambridge University. Between 1985 and 1992 he was Adam Smith Professor of Political Economy at Glasgow University. From 1994 to 2000 he was the Director of the ESRC Research Programme on Global Economic Institutions in the UK, and from 2008 to 2012 he was the Research Director of PEGGED, a European Union Framework Seven Research Programme on the European Dimension of the Politics and Economics of Global Governance. David’s publications in the last decade include The Leaderless Economy (Princeton University Press, 2013) and Keynes: Useful Economics for the World Economy (MIT Press, 2014), both written jointly with Peter Temin of MIT, and Capital Failure: Restoring Trust in Financial Services (OUP, 2014), which he edited with Nicholas Morris. Most recently he was joint-editor of an issue of the Oxford Review of Economic Policy, published in April 2023, which analysed the reform of the international monetary system.