(1.1) Macro foundations

Question 1

True or false? If growth is slowing, the economy can still be growing

Answer 1

True

Question 2

4

Outline the 4 aspects of the macro workflow

Answer 2

data -> models -> quantification -> policy/counterfactuals

Question 3

2

Outline facts (macro workflow)

Answer 3

• collect and summarise data
• macro time series, micro data, institutional detail

Question 4

1

Outline theory (macro workflow)

Answer 4

• build a model to capture a mechanism

Question 5

1

Outline discipline (macro workflow)

Answer 5

• quantify the model (calibration / estimation)

Question 6

1

Describe use (macro workflow)

Answer 6

• explain history, forecast, and run counterfactuals

Question 7

1

Describe microfoundations

Answer 7

• Macro relationships come from the behaviour of households and firms

Question 8

4

Briefly describe the history that led to microfoundations

Answer 8

• Early macro worked directly with aggregate relationships
• Large Keynesian models employed
• 1970s, inflation and unemployment rose together
• previously stable relationships failed to predict outcomes

Question 9

5

What was the issue with the previous macro focus on aggregate equations

Answer 9

• Aggregate equations did not explain why behaviour looked the way it did
• Expectations ignored
• Behavioural relationships assumed to be policy-invariant
• When policy relationships changed, relationships broke down
• So these models described correlations, not DM

Question 10

2

What is the key insight from the 1970s stagflation?

Answer 10

• people change behaviour when policy rules change
• aggregate relationships depend on expectations and incentives

Question 11

1

Define micro data

Answer 11

• individual or firm-level outcomes used to understand mechanisms

Question 12

2

Define macro data (w/ examples)

Answer 12

• time series of aggregate variables
• e.g. GDP, unemployment, inflation, interest rates, debt, etc

Question 13

2

Why do we use micro data in macro?

Answer 13

• aggregates move because individual decisions move (pricing, hiring, investment)
• micro heterogeneity often shapes aggregate responses to shock and policy

Question 14

4

Give 4 examples of data sources

Answer 14

• Standard sources
• Scanner data
• Online prices
• Non-traditional sources

Question 15

3

Give examples of standard sources

Answer 15

• national accounts
• labour force surveys
• price indices

Question 16

4

Give examples of scanner data

Answer 16

• transaction-level retail data, including:
• prices
• quantities
• substitution

Question 17

2

Describe online prices

Answer 17

• high-frequency data
• algorithmic pricing can speed
  up adjustment

Question 18

3

Give examples of non-traditional sources

Answer 18

• text from central bank communication
• news
• online platforms