Category Archives: general

Nobel Pursuits: CERGE-EI Interviews Nobel Prize Winner Christopher Sims

Christopher Sims won the Nobel Prize in Economic Sciences in 2011. When he came to CERGE-EI this summer to lecture about his research, we knew we had to sit down with Professor Sims for a more intimate interview. Take a look at the conversation between this brilliant laureate and some of our PhD students at CERGE-EI:

What can you tell us about the journey to winning the Nobel Prize? Where you got your ideas, who influenced you the most, the evolution of the research?

My Nobel Prize is focused on the empirical econometric work I did on monetary policy. My ‘Noble lecture’ kind of goes through that, but I can summarize it: In the 1950s and early 1960s, Keynesian Economics was dominant. And in the 50s, which was very close to the Great Depression, the Keynesian consensus was that monetary policy was not very important and fiscal policy was. And this was a legacy of the period of the Liquidity Trap in the 1930s, when monetary policy indeed was not very effective—a period much like the present, in that respect.

Back then, econometricians developed large statistical models, based on Keysian Theory. They built on the insights of Trygve Haavelmo and Jan Tinbergen, two earlier Nobel Prize winners. And they ended up with very large unwieldy models, for which the statistical methods proposed by Haavelmo didn’t really work very well.

So into this scene came the monetarists led by Milton Friedman, and they used much simpler statistical models and focused on just a few variables. They argued that the connection between the money stock and income was the central, most important fact in macroeconomics. But this factor didn’t emerge as central and important from the perspective of those big Keynesian models.

There was really no way for these two schools to resolve their differences with the econometric methods that were available at the time. But in the big Keynesian models, everyone knew they made assumptions that weren’t believable.

So what I did was first I validated the monetarists. They were running regressions of nominal GDP on current and past money stock, and interpreting them as policy-exploitable relationships. They interpreted them as if changing the money stock would change nominal GDP according to the coefficients they estimated in those models. I argued that if that were true, there was a testable implication. This was a causal model. In this logic, future money should not be correlated with income, given past money. So I checked that implication and it turned out that the implication was satisfied by the data.

And so something that both Keynesians and I would have predicted would show that the monetarists were wrong, actually showed they were probably right.

But then a student of mine, Yash Mehra, did a study of so-called ‘Money Demand Equations’. Because at the same time that Friedman was estimating these income-on-money regressions, other people were putting money on the left side and income and interest rates on the right. They were calling this ‘money demand’, and it was another similar equation regression. So I said to Mehra: ‘this looks like a good thing to check, because If money is causing income, than these money demand equations must be nonsense. Money doesn’t belong on the left-hand side.’

But Mahra did the tests and it turned out they passed. He showed that with money on the left and income and interest rates on the right, it looked like everything on the right-hand side satisfied this condition that the future size of the variables shouldn’t matter.

I was puzzled by these results and decided that I wasn’t going to make sense of them unless I put together a model with more than one equation. So I estimated a small, vector regression with several equations, and once I did that I could see that interest rates predict money, and if that’s right, then the usual ‘monetarist’ interpretation of this system didn’t really hold up.

So there is a kind of consensus now on how the economy dynamically responds to monetary expansion or tightening. It’s not really precise, but GDP tends to respond a little quicker than prices, and they both tend to go down when money is tightened. These come right out of quantitative statistical estimates, and there are different ways to do the identification, to separate these two influences. And they give consistent results. That was what the prize was for, that sequence of developments.

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CERGE-EI Interviews Professor Philippe Aghion

Let’s start from the beginning. Who influenced your decision to become an economist?

I wanted to go into economics because I was politically engaged; I was a left wing militant in my youth. And I realized then that understanding the economy was important because I could see that it plays a big role in political events. I thought it was good to be able to go into academics to understand these things better. I knew there are ways to transform the world and to make it a better place, so that’s what motivated me.

So tell us, where did you get your education?

In France I started mathematics first. I went to do my PhD in Harvard, and then I spent two years at MIT. Eventually I was a bit homesick, so I went back to Europe, and spent ten years here.

In Europe I spent most of my time in London because the EBRD was being created and I was part of the team that started it. Then in 2000 I went back to Harvard and I’ve been a professor there since then.

As for your current state research, what is your interest? And as a professor who has published many books and articles, where do you see the research gap?

My area of research is growth economics. What differentiates my approach from other approaches to growth is that firms play a big role. It’s an ‘industrial organization’ approach to growth. Particularly I examine competition and growth, industrial policy and growth, and how monetary and fiscal policy influence growth by affecting firms’ investment decisions, like R&D and other types of investment. So it’s very much firm level growth analysis, and that’s really what I’ve been pushing.

My training is in theoretical industrial organization and contract theory. I try to understand how market structures and the organization of firms and government matters for growth. Recently I’ve also been working on climate and growth.

I’m very interested in how to rethink growth policy in Europe. Everyone talks about growth policy. So how should it be designed? I think the research I do has something to say about how to design a growth policy package for Europe.

It always leads to using a Schumpetrian approach to get into new reconsiderations of growth policy; this could be competition, it could be more general structural reforms, it could be industrial policy, investment policy, or microeconomic policy of growth. It’s on those grounds that things can be done to spur growth in the Eurozone.

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Bon Appetite: Another Succesful International Food Party at CERGE-EI

One of the joys of traveling across Europe is experiencing the variety of unique foods and flavors that are distinct to each country. The students of CERGE-EI brought all this joy to one location: our beautiful CERGE-EI courtyard.  The annual International Food Party at CERGE-EI is a chance for students to prepare a sampling of the distinct cuisine of their home country. With a diverse student body from all over Europe, as well as Central Asia, North America, and Africa, the ‘menu’ was absolutely superb.

The courtyard was brimming with students and faculty, all enjoying the food, drinks and sweets: red and white wine from Moldova, ajapsandali (eggplant and potato dish) from Georgia, kitirlek (fried cookies) from Kazakhstan, harissa (chicken porridge) from Armenia, qofte (meatballs and pita) from Albania, šaltibarščiai  (cold pink borscht) from  Lithuania, svetskove knedliky (plumb dumplings) from Czech Republic. The list goes on. Even award-winning American blueberry pie made an appearance, before being quickly devoured.

The event not only provided a great opportunity for students to showcase the cuisine of their country, it also brought everyone at CERGE-EI away from their academic pursuits to mingle, chat, and enjoy the beautiful autumn weather in Prague.

Have a look at the photo album highlighting just a few of the offerings from the event.

 

KPICASA_GALLERY(InternationalFoodPartyAtCERGEEI)

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What’s Really Hidden in the Hidden Economy? CERGE-EI Interviews Professor Dilip Bhattacharyya


 

 

 

 

 

 

 

Could we have predicted the crisis? Were there hidden clues and we just didn’t know where to look? Professor Bhattacharyya (University of Essex) is on a mission to measure the hidden economy and understand what it can tell us about macroeconomic instability.

Dr. Bhattacharyya’s guest lecture at CERGE-EI, titled “Predicting the 2008 Financial Crises from the Hidden Economy Estimates,” outlined how hidden economy estimates and the methodology used in the estimation procedure allow us to produce an indirect measure of ‘excessive money.’ Previous scholars, notably Raghuram Rajan, have noted that ‘excessive money’ in the economy was a primary cause of the 2008 financial crisis. Dr. Bhattacharyya paper notes that even as early as 1995 there were hidden signals suggesting a possible impending crisis for the UK economy.

Could we have predicted the 2008 financial crisis13 years earlier if the authorities had cared to consider this research?

 

Check out CERGE-EI’s brief interview with Dr. Bhattacharyya:

What is the most important insight from your research?

The most important insight, which is often missed, is that there are signals in this world which are mostly ignored by mainstream economists, and which can predict a lot of things which mainstream economics cannot. More importantly, it highlights the changing economic structure—the informal economy is taking a more important role, so learning about it and how it is interrelated with the normal ‘recorded’ economy is an important part for the future of the world. We hear now that there is 10% unemployment. But how these people can be absorbed into the system is not always necessarily through the process of formal employment—there might be informal employment structures growing. These are very fundamental questions in economic analysis. I don’t know when and how long it will take for this type of research to be taken up in a very deep way—but I won’t be surprised if one day someone working in this area becomes a Noble Prize winner Continue reading What’s Really Hidden in the Hidden Economy? CERGE-EI Interviews Professor Dilip Bhattacharyya

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“Ruka Juu” with Dr. Bertil Tungodden — Does Media Appeal to the Entrepreneur in Us?

We usually speak about television in negative terms. But can television inspire development? On Monday, the CERGE-EI community went on an intellectual journey to Tanzania through the illustrative seminar presented by Professor Bertil Tungodden (Norwegian School of Economics, Bergen, Norway).  Seminar participants were treated to an in-depth analysis of a randomized field experiment designed to see if entrepreneurial skills and attitudes can be communicated through television programming.

The experiment was based on an ‘edutainment’ show called Ruka Juu (Swahili for “jump-up”), a televised reality-based entrepreneurship competition. It aired on national television in Tanzania in the spring of 2011. The overall aim of Ruka Juu was to educate, inform and motivate Tanzanian youth (aged 15-30) on issues related to entrepreneurship, business skills and financial literacy.

Professor Tungodden and his co-authors wanted to see if the program was making real impacts in educating and inspiring the Tanzanian people. They decided to document how the show was influencing key ‘entrepreneurial variables’ in the population, such as ambitions, knowledge, risk-taking, patience, and willingness to compete.

The engaged seminar participants learned how the authors faced the daunting task of designing a field experiment able to identify the impact of a nationally broadcasted program; particularly the challenge of establishing a proper “control group.” The trick was to randomly select some schools and incentivize this “treatment group” to watch the edutainment show; meanwhile they incentivized a control group to watch a classic soap opera instead. Frequent power outages and lack of television sets were some of the obstacles they faced. However they eventually arrived at notable results, finding strong evidence that ‘edutainment’ both inspired the viewers to learn more about entrepreneurship and motivated them to start their own business.

The experiment also leads the authors to conclude that the impact of edutainment on business knowledge is much weaker. In sum, their results suggest that the media may be a very powerful tool to foster entrepreneurship among young people, but also points to limitations of edutainment as a tool to communicate business knowledge.

Edutainment needs to be supplemented with other efforts to increase business knowledge and skills. But overall, Dr. Tungodden’s lecture at CERGE-EI made a convincing argument: media encouragement and educational television programming can be used to inspire young Tanzanians to realize their potential. Finally something good on TV!

Author: Liyousew G. Borga, 2nd Year PhD Student

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CERGE-EI Blog Is Back!

ATTENTION: The CERGE-EI blog has been roused from its slumber! After a temporary hiatus, the blog is gearing back into action with lots of new content. Stay tuned in the coming weeks and months for interesting updates and stories. We are particularly excited about a new series of content highlighting the visits of prestigious guests and lecturers at CERGE-EI. Keep checking back in!

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Jan Svejnar: Tapped By Destiny

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It’s hard not to believe in destiny if you are Jan Svejnar.  As a student in his last year of high-school and the son of a pro-reform Czech economist at the ILO in Geneva during the Dubcek period, Jan fled Czechoslovakia in1970 with his guitar, his skis and his 13-year-old sister, one step ahead of the police who were about to revoke his exit visa. Eighteen years later in1988, after a Cornell BA and Princeton PhD, a chance encounter with a Czech researcher at a conference in Vienna would  again profoundly alter the life of Jan Svejnar, then a professor of economics at the University of Pittsburgh.

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Life Outside CERGE-EI: Water Sports in Czech Republic

Czech rivers offer a number of opportunities for water-sport fans for self-realization. One can find stretches of the rivers of all difficulties, starting from calm rivers for beginners to world most difficult water slalom stretch of Moldau river called Devil’s currents located close to water dam called Lipno. That is why water sports are very popular in Czech Republic and therefor I would like to dedicate this sport blog to water sports, such as kayaking, rafting and canoeing. I will introduce rivers Moldau (Vltava), Luznice, Berounka and Sazava as they are the four most attractive rivers to visit. Nonetheless, the actual number of possible trips ranges beyond rivers mentioned here.
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Under Angel’s Protection: Welcome to CERGE-EI Building

With no doubts, the environment is a very important element of our life. Culture we grow in shapes us as personalities. People we interact with may cardinally change our vision of the world. It would not be a surprise for you to learn that even the difference in climates can partially explain why Italians are so different from Swedes. But does the spirit of the building we work in matter? Let’s hope it does as the CERGE-EI building is associated with Angels.
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