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© National Institute of Economic and Social Research 2019

Why are Economies Unstable?

Welcome to Rebuilding Macroeconomics' Macroeconomic Instability Hub

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Background

Modern macro models are based on the premise that agents will respond to any unforeseen disturbance in such a way that their actions will co-ordinate activity toward the optimal use of resources. The task for policymakers is then merely to reduce economic volatility. This self-stabilising structure appears to be at best questionable in the wake of the Great Recession. In recovery, the spectre of ‘secular stagnation’ has emerged, with no self-correcting mechanism.

We expect scholars to bring insights from sociology, psychology, anthropology and network theory in order to extend our understanding of preferences and decision making, and the implications for stability. Economists may ask how an inherent instability hypothesis can be usefully incorporated into models and used as a guide to policy. Scientists may query whether agent-based models can be revised, so that they may provide better predictions of policy outcomes or more robust policy options in unstable economies. Or perhaps some entirely new approach will emerge that we have not yet foreseen.

Hub Co-Leader: Prof Roger E. A. Farmer

Roger E. A. Farmer is the Co-Leader for Rebuild Macro’s Instability Hub and Research Director at NIESR, London. He is also a Professor of Economics at the University of Warwick in the UK and a Distinguished Professor of Economics at UCLA. Roger is widely known as a world-leading economist and former Senior Houblon-Norman Fellow at the Bank of England. He has published numerous scholarly articles in leading academic journals, as well as books that have been translated into Chinese, Italian, Vietnamese and Hungarian.

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Hub Co-Leader: Jean-Philippe Bouchaud

Jean-Philippe Bouchaud is the Co-Leader for Rebuild Macro’s Instability Hub. After studying at the French Lycée of London, he graduated from the Ecole Normale Supérieure in Paris, where he also obtained his PhD in physics. He was then appointed by the CNRS until 1992. After a year spent in the Cavendish Laboratory (Cambridge), he joined the Service de Physique de l’Etat Condensé (CEA-Saclay), where he worked on the dynamics of glassy systems and on granular media.

Research Projects

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Michael Hatcher

Endogenous Extrapolation: Implications for Boom-Bust Cycles and Macroeconomic Policy

A key distinction between economies and physical systems, like the weather, is that economies consist of individuals who form expectations about the fut...

Principal Investigator:

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Professor Robert MacKay, FRS

But Why are Economies Stable?

The macroeconomic question: For mathematicians, the puzzle is not why economies are unstable but why they are stable. Since the...

Principal Investigator:

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Professor Nick Chater

Macroeconomic Implications of the Sampling Brain

Recent developments in cognitive science have created new models of the moment by moment calculations by which people make decisions....

Principal Investigator:

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Professor Sayantan Ghosal

Anxiety, Competing Narratives & the Macroeconomy: What is the Role of Policy in Stabilising Expectations?

This project will focus on examining the conditions under which competing narratives co-exist, influence (and are influenced by) individuals’ emotions... 

Principal Investigator:

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Professor Franck Portier

Macroeconomic Fluctuations as Emergent Behaviour

The main challenge facing macroeconomics is to understand how a large set of decentralized decisions interact to create aggregate outcomes characterized by booms...

Principal Investigator:

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Maxim Gusev & Dimitri Kroujiline

An Interactions-based Macroeconomic Model

The main challenge facing macroeconomics is to understand how a large set of decentralized decisions interact to create aggregate outcomes characterized by booms...

Principal Investigators:

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