Macroeconomics:
Institutions, Instability, and the Financial System
di Wendy
Carlin (Autore), David Soskice (Autore)
This
authoritative new textbook integrates the modern monetary framework, based on
the 3-equation model of the demand side, the supply side and the policy maker,
with a model of the financial system. As a result, the authors comprehensively
address the limitations of the mainstream macroeconomic model exposed by the
financial crisis and the Eurozone crisis.
The book
guides the reader through the three principal steps required to integrate the
financial system within the macroeconomic model.
Firstly,
the authors examine how the margin of the lending rate over the policy rate is
set in the commercial banking sector, how money is created in a modern banking
system and how the central bank can take account of the working of the banking
system in order to achieve its desired policy outcome.
Secondly,
the authors explore the characteristics of the financial system that result in
vulnerability to a financial crisis, with implications for fiscal balance. The
economy depends on the continuity of core banking services and governments
cannot afford to let them fail. This means that important banks do not bear the
full cost of their lending decisions. As a result, they may have an incentive
to take on excessive risk.
Thirdly, a
simple model is developed of the behaviour of highly-leveraged financial
institutions as the basis for a leverage or financial cycle in the economy.
In
addition, the book extends the 3-equation model to the open economy and uses a
simple 2-bloc version of the 3-equation model to introduce global imbalances.
The case of a common currency area is handled within the core model - both at
the Eurozone level and at the level of member countries.
Every
chapter emphasises how the different actors in the economy behave and interact:
what are they trying to achieve and what limits their ability to put their
intentions into practice? This is extended to the modelling of growth, where
the role of innovation rents in the Schumpeterian model is highlighted. It is
essential that students understand previous periods of growth, stability and
crisis in preparing for future shocks. With this in mind, the book enables the
reader to interpret long run historical data and to compare institutional
detail in different eras and across the world.
Consequently,
this text not only develops the critical thinking skills required for academic
success, but ensures the reader can analyse data, trends, and policy debates
with the confidence necessary for a career in economics or finance. As a
result, it is essential reading for all those interested in learning more about
the current macroeconomic system and the role played by financial institutions.
