Macroeconomics: Institutions, Instability, and the Financial System

Paperback | November 28, 2014

byWendy Carlin, David Soskice

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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 mainstreammacroeconomic 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 importantbanks 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 ishighlighted. 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 interestedin learning more about the current macroeconomic system and the role played by financial institutions.Online Resource Centre:For students:* Conduct a range of exercises with the closed and open economy versions of the model using the Excel-based macroeconomic simulator.* Develop your understanding with additional technical material available in the accompanying web appendices.For registered lecturers:* Access the solutions to end of chapter questions from the book.

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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 mainstreammacroeconomic model exposed by the financial crisis and...

Wendy Carlin is Professor of Economics at University College London and Research Fellow of the Centre for Economic Policy Research. David Soskice, FBA, is School Professor of Political Science and Economics at The London School of Economics and Political Science.

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Paperback|Jun 1 1989

$110.61 online$121.95list price(save 9%)
Format:PaperbackDimensions:680 pages, 9.69 × 7.44 × 0.01 inPublished:November 28, 2014Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199655790

ISBN - 13:9780199655793

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Table of Contents

1. The demand side2. The supply side3. The 3-equation model and macroeconomic policy4. Expectations5. Money, banking and the macro-economy6. The financial sector and crises7. The global financial crisis: applying the models8. Growth, fluctuations and innovation9. The 3-equation model in the open economy10. The open economy: the demand and supply sides11. Extending the open economy model: oil shocks and imbalances12. The Eurozone13. Monetary policy14. Fiscal policy15. Supply-side policy, institutions and unemployment16. Real Business Cycle and New Keynesian models

Editorial Reviews

"In the light of the events of the past decade, it is important that a new macroeconomics text attempts to satisfy the demands of those learning and using macroeconomics to be able to access relatively simple models which reflect the ways in which the financial sector interacts with the realeconomy. This is by no means an easy task. The new Carlin and Soskice book represents a significant step forward in this regard. Consequently undergraduates, post-graduates and their teachers should be grateful that they can now access teaching materials which have something useful to say about thefinancial crisis." --Professor Stephen Nickell, CBE, FBA. Honorary Fellow of Nuffield College, Oxford