Must-Read: Simon Wren-Lewis: Macro Teaching and the Financial Crisis
…but additional chapters where the AS curve becomes a Phillips curve, and money targeting gives way to Taylor rules. The student ends up totally confused, if they ever get to those later chapters. And after the financial crisis, a new edition will have a chapter devoted to that crisis, but not much in earlier chapters will change. This is not the case with the third textbook by Wendy Carlin and David Soskice… a complete rewrite of their earlier ‘Macroeconomics: Imperfections, Institutions, and Policies’. Luckily all the features of that earlier book that I really liked are retained… a supply side based on imperfect competition… a core model (the 3 equation model) which dispenses with the LM curve, and replaces it with a ‘monetary rule’ curve… open economy analysis is now fully integrated with the 3 equation model…. But by far the most important change… [is] three chapters on the financial sector… banking… a wedge between the ‘policy’ interest rate and the interest rate relevant for the IS curve…. how the financial system can be a source of instability… the financial crisis of 2008…. Mark Gertler on the back cover writes: ‘This is an exciting new textbook. Overall, it confirms my belief that macroeconomics is alive and well’. That pretty well sums up my reaction.