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Scott Sumner coins a fun term the “Princeton School of Macro” for the work in monetary economics at Princeton from the mid 1990’s to mid 2005 in this podcast https://directory.libsyn.com/episode/index/show/macromusings/id/17491958 1/n
Sumner associates it to influential work done the ZLB during this period by Krugman, Svensson, Bernanke, Woodford and yours truly. 2/n
While I might be a bit out of place in this august group (!), there may be something to the notion that there was Princeton School of Macro of sort during this period, and much beyond the ZLB work Sumner cites, that changed monetary economics as we know it. 3/n
Perhaps there was something in the water in New Jersey at the time? A few examples from the “Princeton School of Macro” that now have become part of the macro canon. I’m probably missing a lot! 4/n
1) Empirical work by Bernanke and Blinder (AER, 1992) led people to stop focus on money supply as instrument of policy instead focusing on Federal Funds. Important additional work Mark Watson on structural VAR’s 5/n
2)This was reinforced by Woodford’s (RED, 1997) introduction of the “cashless limit” – now standard in the literature. It gets rid of money altogether! 6/n
3)Moving from money to interest rate to measure stance of monetary policy was a fundamental shift in the macro profession -- and a major contribution of “Princeton School of Macro” 7/n
4)Alan Blinder (1998) had one of the first serious analysis of the microdata of price adjustment in his classic “Asking about Prices” book. This was the precursor of a major literature once people got access to the microdata underlying the CPI, etc, 8/n
exemplified e.g. in the work of Bils and Klenow, not to mention Nakamura and Steinsson -- two Princeton undergrads during the heyday of the “Princeton School” – but both wrote their undergrad thesis under Woodford. 9/n
5)Mike Woodford developed the canonical three equation New Keynesian model now found in most text-books, and wrote the Bible of monetary economics, Interest and Prices during this time period. 10/n
6)Mike Woodfords paper with Rotemberg in 1997 Macroannual is really the first fully fledged estimated “DSGE” monetary model, the DNA of which is now found in most central banks today. 11/n
7)While Rotemberg and Woodford used simple VAR impulse response matching to estimate the model, the agenda was pushed to the next step by another Princeton guru, Chris Sims, who argued for using Bayesian methods to estimate DSGE models.... 12/n
...this agenda was eventually pushed substantially forward by Smets and Wouters, building on Frank Schorfeide and other. 13/n
8)Bernanke developed the “financial accelerator” model in series of paper, thus integrating financial frictions into DSGE, e.g. in the classic 1999 paper with Mark Gertler and Simon Gilchrist. 14/n
9)Chris Sims presented the first paper on rational inattention at the Princeton macro seminar in the early 2000. Chris said it came out of his undergraduate thesis(!). This work launched a whole new research agenda 15/n
10)The work of Bernanke, Svensson and Woodford during this period became the intellectual underpinning of inflation targeting, a framework adopted throughout the industrial world during this time period and shortly after. 16/n
11)Ken Rogoff, in his classic textbook with Maurice Obstfeld, integrated nominal friction into general equilibrium for open economy macro. Obstefeld and Rogoff’s book was to International Finance what Interest and Prices was to monetary economics. 17/n
12)Sims and Woodford wrote series of paper on the fiscal theory of the price level (FTPL) etc,
I was only one of several students that came out of Princeton during this period. Other example include Pierpaolo Benignio, Bruce Preston, Refet Gurkaynak, Andrea Tambalotti, Alejandro Justiniano, Georgio Primiceri, Cedric Tille, Francesco Bianchi, to name a few. 19/n
Many students from this period took on leadership position in central bank later, Eduardo Loyo, Carlos Carvalho and Fernanda Nechio became deputy governors at Brazil central bank .... 20/n
... Jean Bovin deputy governor at the Bank of Canada, Thomas Lauerback director of Monetary affairs at Fed, Gita Gopinath Chief Economist at the IMF, Marc Giannoni head of Research at the Dallas Fed. 21/n
The junior faculty around this time was not shabby, and included for example Helen Rey, Jonathan Parker, Rob Shimer, Pierre-Olivier Gourinchas, Ricardo Reis, Noah Williams, Guido Lorenzoni and Markus Brunnermeyer and many more. 22/n
I’m probably missing plenty of stuff from this fun period - can probably be helped out by @Bellmanequation, @helene_rey,
@pogourinchas, @R2Rsquared,
@guido_lorenzoni, @MarkusEconomist,
@PierpaBenigno, @BruceJPreston, @GitaGopinath, @gprimi, @paulkrugman, @leosven, @benbernanke
@pogourinchas, @R2Rsquared,
@guido_lorenzoni, @MarkusEconomist,
@PierpaBenigno, @BruceJPreston, @GitaGopinath, @gprimi, @paulkrugman, @leosven, @benbernanke
