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Teaching of Macroeconomics After the

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Teaching of Macroeconomics After the Great Contraction Anca Voicu Rollins College, FL Somnath Sen University of Birmingham, UK Rollins College, FL * * – PowerPoint PPT presentation

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Title: Teaching of Macroeconomics After the


1
Teaching of Macroeconomics After the
Great Contraction     Anca Voicu Rollins
College, FL Somnath Sen University of
Birmingham, UK Rollins College, FL
2
Motivation of Paper
  • The Great Contraction of 2008 onwards, which
    followed the Great Moderation of the previous
    decade, highlighted the various challenges that
    macroeconomists face in explaining their subject
    to undergraduates
  • The multitude of possible approaches to
    explaining and solving the Great Contraction
    puzzle, and the concomitant non-conventional
    policy measures required, adds a new challenge to
    the task of teaching macro economics
  • Both the structured content of a traditional
    macroeconomics course as well as teaching
    strategies will prove to be highly important in
    delivering expected outcomes i.e. teaching to
    students who wish to understand economic reality
    but within a structured framework

3
Motivation of Paper Context
  • Discussion on this issue has been continuing for
    the last half decade but with little structural
    change in content and form of macro courses
  • Informal discussions with colleagues who teach
    the subject in the UK shows that traditional
    books such as Mankiw are still the core of the
    syllabus nothing much has changed!
  • Yet, THE JOURNAL OF ECONOMIC EDUCATION, 41(4),
    2010 had a series of papers by eminent
    macroeconomists asking for changes in the
    intermediate courses for the teaching of
    macroeconomics
  • Shiller, Blinder, Friedman all call for a
    reorientation of macroeconomics teaching in a
    special issue, edited by David Colander, of this
    pedagogic journal
  • In a major conference hosted by the Bank of
    England in 2012, What Post-Crisis Changes Does
    the Economics Discipline Need? similar
    sentiments were expressed by European and British
    economists

4
Motivation what practioners think
  • The Bank of England conference also discussed
    with academics, policy makers and employers the
    need for a re-orientation of macroeconomics
    courses and syllabi
  • According to the Royal Economics Society
    newsletter
  • The conference reached some shared conclusions
    about the way young economists are trained. There
    was broad agreement that students need
  • Greater awareness of economic history and current
    real-world context
  • Better practical data-handling skills
  • Greater ability to communicate economics to
    non-specialists
  • More understanding of the limitations of
    modelling and current economic methodology
  • A more pluralistic approach to economics
  • A combination of deductive and inductive
    reasoning.
  • http//www.res.org.uk/view/article7Apr13Features.h
    tml
  • http//www.theguardian.com/education/2014/may/04/e
    conomics-students-overhaul-subject-teaching

5
So, what is the problem?!
  • My mnemonics is PPP
  • Paradigm shift, do we need to change our whole
    model
  • Practical issues and problems in constructing a
    course
  • Perspectives and viewpoints, are they
    reconcilable
  • Let me use a few simple quotations from the
    papers from the Journal of Economics Education
    from eminent macroeconomists to explain what I
    mean

6
Quotes Paradigm changes
  • Paradigm? Five such lessons are that we live in
    a monetary economy and therefore aggregate demand
    and policies that affect aggregate demand are
    determinants of real economic outcomes
  • that what actually matters for this purpose is
    not money but the volume, availability, and price
    of credit
  • that the fact that most lending is done by
    financial institutions matters as well
  • that the prices set in our financial markets do
    not always exhibit the rationality economists
    normally claim for them
  • and that both frictions and the uneven impact of
    economic events prevent us from adapting to
    disturbances in the way textbook economics
    suggests (Benjamin Friedman)
  • We could move to the other extreme and explain in
    terms of heterodox macroeconomics such as in the
    writings of Godley and Minsky
  • Necessary pluralism in the economics curriculum
    the case for heterodoxy http//www.res.org.uk/vie
    w/art6Oct14Features.html

7
Quote Practical problems
  • Practicalities?
  • Two tradeoffs are paramount and must be faced by
    every instructor
  • (1) how much additional complexity must be and
    can be introduced in a principles course in which
    the students are relatively unsophisticated
  • and (2) although it is easy to think of new
    topics that recent events demand instructors
    add, it is much harder to think of topics to
    delete. Yet economists should understand the
    necessity of choice forced by (time) budget
    constraints.
  • (Alan Blinder)

8
Quote Perspectives and viewpoints
  • Perspective
  • Then (Great Depression) and now, a good number
    of students have felt that their lectures bear
    little relation to the economic crisis raging
    outside the halls of academe.
  • The economics profession seems unusual, when
    compared with some other professions, in
    complaints that the teaching is irrelevant to
    practical lives
  • Students mostly recognize that their teachers are
    struggling with the conceptual difficulties that
    are inherent in the field. Teachers can encourage
    such recognition and best serve their students if
    they refer regularly and respectfully to the
    history of economic thought, conveying the
    reasons for the theoretical constructs of other
    times and the tentativeness of current theories
    (Robert Shiller)
  • See also the Lindau conference
    http//www.theguardian.com/business/economics-blog
    /2014/aug/24/nobel-winning-economists-challenge-co
    nventional-thinking
  • International Student Initiative for Pluralism in
    Economics

9
Cartoon
10
Cartoon
11
Cartoon
12
Structuring a core or intermediate macroeconomics
course
  • Use the pedagogic or teaching model used by
    development economists
  • Traditionally, development economists in their
    teaching methods used what Adelman called the
    KISS principle, Keep it Simple (Stupid)
  • Simple explanations (often couched in intensive
    mathematical reasoning) and universally valid
    principles
  • Leads to single cause theories single (or few)
    criterion for successful development development
    as an unidirectional or (log)linear process
  • Traditional macro economics uses the R-models
    to again pinpoint few causes of business cycles
    and its elimination without major policy
    interventions
  • The many Rs
  • Ricardian equivalence (and fiscal neutrality)
  • Real Business Cycle
  • Representative agent
  • Rational Expectations
  • Risk neutrality

13
The fallacy of an universalist model
  • Rajan calls it the irrelevance theorems THE
    JOURNAL OF ECONOMIC EDUCATION, 41(4), 398402,
    2010
  • Using the frictionless representative agent
    framework, we get a lot of irrelevance theorems
    both in finance, such as the Modigliani Miller
    theorem, which shows that the capital structure
    of firms doesnt matter and in macroeconomics,
    such as the Ricardian equivalence theorem, which
    suggests that it does not matter whether the
    government finances its spending by taxes or
    bonds.
  • All these irrelevance theorems give one the sense
    that policy does not matter much.
  • Therefore inform the students that there is no
    universal answer and that a few models will point
    out the perspectives and principles
  • There is no mega or encompassing models with
    specific case studies becoming special cases
  • After that we need to be eclectic (ad hoc?)

14
Macroeconomics course from the lens of
Alternative Perspectives.
  • To get rid of this universalist mindset, treat
    each mega-model as one element of an Alternative
    Perspectives framework
  • So, each mega-model is simply a core paradigm or
    a fundamental perspective, which may be useful in
    some institutional circumstances, but not in
    others
  • Use a core textbook such as Mankiw, if it is
    helpful, but warn students there are no general
    cases from which specific cases can be drawn
  • Do not use terms such as Mother of all models
  • Use as many visualization tools, games, websites,
    newspaper articles, policy blogs as you can to
    make the subject interesting
  • Reduce the amount of formal theorizing
  • Stress that policy-making is an art and not a
    science
  • Have structured lectures on Classical, Keynesian,
    Minsky models plus some historical analysis.

15
Why history?
  • Finance is History! Harold James, Princeton
    University
  • A new sensitivity to the significance of
    historical experience has developed since the
    2007 financial crisis. A recent report by the UK
    Chartered Financial Analyst (CFA) Society
    castigates financial amnesia among individuals,
    markets and regulators, and argues that it
    causes risk to be mispriced, bubbles to develop
    and crises to break. The report suggests formal
    requirements for investment professionals to
    study financial history as a remedy.
  • Before the crisis, risk models were usually
    constructed on the basis of historical data
    that covered only a relatively short time span,
    ten or often only five years. The reasons are
    self-evident beyond that limited range of dates,
    data comparability becomes a problem current
    financial products do not have exact analogues in
    older trading instruments regulatory practices
    have changed and monetary policy is conducted in
    different ways. So history is bunk. Financiers
    thought that they had arrived at the end of
    history
  • But students need a major dose of perspective and
    at least in macroeconomics it is important to
    have a long-term perspective

16
An example Monetary policy
  • Start with a core monetary policy model,
    synthesizing classical and Keynesian theories
    Mankiw Chapter 3, 4, 11, 12
  • Use the liquidity trap to show issues of Zero
    Lower Bound
  • Students play Games for monetary policy, and are
    monitored on the why and how
  • Federal Reserve
  • http//sffed-education.org/chairman/
  • http//www.federalreserveeducation.org/resources/d
    etail.cfm?r_id83165294-571e-4940-af70-8939434adb2
  • European Central Bank
  • https//www.ecb.europa.eu/ecb/educational/economia
    /html/index.en.html
  • Bank of England
  • http//www.bankofengland.co.uk/education/Pages/res
    ources/inflationtools/balloon/default.aspx

17
An example Monetary policy
  • Explain and demonstrate Simple DSGE type models
    (Mankiw Chapter 15)
  • What are the policy objectives of CBs? Why
    doesnt the CB target asset inflation? Can
    aggregate demand effects counteract positive and
    negative supply shocks?
  • Provide a Critique of excessive formalism
  • The Bank of England in 2007 faced the onset of
    the credit crunch with too much Robert Lucas,
    Michael Woodford and Robert Merton in its
    intellectual cupboard.  A drastic but chaotic
    re-education took place and is continuing. I
    believe that the Bank has by now shed the
    conventional wisdom of the typical macroeconomics
    training of the past few decades.  In its place
    is an intellectual potpourri of factoids, partial
    theories, empirical regularities without firm
    theoretical foundations, hunches, intuitions and
    half-developed insights.  It is not much, but
    knowing that you know nothing is the beginning
    of  wisdom. Wilhelm Buiter
  • http//blogs.ft.com/maverecon/2009/03/the-unfortun
    ate-uselessness-of-most-state-of-the-art-academic-
    monetary-economics/

18
Actual short course at Rollins Research
Questions on Teaching Strategy
  • Why are teaching strategies important and how did
    their use in the Great Recession An Economic
    Analysis course influence its outcome?

19
Profile of Students Involved
  • This course was offered intensively (five and a
    half hours every day) for a week during
    Intersession in January 2012.
  • The course gathered junior and senior students
    from the following majors Psychology,
    International Relations, International Business,
    Economics.

20
Challenges
  • Short course required filtering the vast amount
    of information to present what is most relevant.
  • Students from a variety of academic disciplines.
  • Students had varying exposure to the study of
    economics.
  • Presenting students with readings and media
    resources (e.g. video clips) articulating
    multiple sides of a familiar debate and ask them
    to arrive at their own reasoned position on the
    topic.

21
Literature Review
  • Literature on Teaching Economics (General)
  • Becker Watts (1996)
  • Colander McGoldrick, (2009)
  • Literature on Critical Thinking
  • Ennis (1992)
  • McPeck, (1981)
  • Thoma (1993)
  • Weinstein (2005)
  • Starting Point Teaching and Learning Economics
  • http//serc.carleton.edu/econ/project/index.html

22
What is Starting Point?
  • This project grew out of recent work by Mark
    Maier and Scott Simkins (National Science
    Foundation Grants DUE 00-88303 and 04-11037)
    investigating pedagogies more commonly used
    outside of economics and adapting them for our
    discipline. Their work reveals that there are
    many pedagogical innovations that economists were
    unaware of, at least those teaching in the U.S.
    This project grew out of the recognition that a
    readily accessible, comprehensive set of
    resources for a wide range of pedagogical
    practices was needed.
  • Starting Point Teaching Economics is a National
    Science Foundation funded project (DUE 0817382)
    that is being developed in collaboration with the
    Science Education Resource Center (SERC) at
    Carleton College (MN) and will build on their
    successful Pedagogic Services framework that
    makes pedagogical modules accessible to
    practitioners across disciplines via a central
    pedagogic database.

23
What is Starting Point?
  • Starting Point is an economics pedagogic portal
    that seeks to
  • introduce economists to innovative teaching
    strategies developed both within and beyond the
    discipline of economics. We are especially
    interested in promoting cross-disciplinary
    adoption and adaptation of research-based
    teaching/learning practices.
  • provide instructors with the tools to begin
    integrating and assessing these teaching
    strategies in their own classrooms. Each teaching
    strategy included in the portal will include
    background knowledge about the strategy and how
    best to use it, reasons for using the strategy,
    and examples illustrating the teaching strategy
    in practice.
  • promote the sharing of teaching innovations among
    instructors. The Starting Point site will
    encourage instructors to submit classroom-based
    examples illustrating the use of the teaching
    strategies included on the site for review and
    cataloging.

24
Course Objectives
  • To provide students with a set of concepts and an
    environment to analyze and debate the causes of
    the recession
  • To equip students with the tools and necessary
    knowledge for them to understand and be able to
    explain the recessions unprecedented global
    extent
  • To discuss the various approaches taken by the
    U.S. and world governments to contain the crisis
    and repair their economies.

25
Course Objectives
  • To emphasize the impact of the current crisis on
    the economics profession and discuss the
    direction that the profession will take from
    here. In doing so we explained the different
    approaches to economics such as Keynesian
    economics, neo-classical vs. heterodox
    (non-mainstream) economics, as well as behavioral
    economics and their importance in better
    understanding that the different explanations for
    the current recession offered by economists are
    based on their beliefs and affiliations. This is
    the reason why various economists offer
    explanations of the causes and effects of the
    current recession that are often times in
    opposition with one another.
  • To expose students to ideas of various economists
    belonging to different schools of thought and
    help them realize how diverse these ideas really
    are and why.

26
Teaching Strategies
  • Socratic method of teaching.
  • Lecturing.
  • Film screening in class (PBS, Inside the
    Meltdown).
  • Use of video clips (rather than print sources) of
    multiple contemporary economists.

27
Sample Video Clips Presented
  • Joseph Stiglitz Nobel prize winning economist
    calls the period between 2001 and 2007 a period
    of corporate welfare.
  • Ron Paul well-known politician with a
    libertarian platform vocal exponent of
    laissez-faire capitalism.

28
Sample Video Clips Presented
  • Dan Ariely proponent of behavioral economics he
    proposes behavioral economics as complement for
    mainstream economics and not as a replacement.
  • Nouriel Roubini Dr. Doom describes the
    doomsday scenarios of a recession with long
    lasting effects which he refers to as a W-shaped
    recession.

29
Sample Video Clips Presented
  • Nicholas Taleb former senior Wall Street trader,
    risk expert and practitioner of mathematical
    finance. He has been credited with making
    warnings about the financial crisis.
  • Barry Schwartz The real crisis? We stopped
    being wise He claims that everyday wisdom will
    help rebuild our world. http//www.youtube.com/wat
    ch?vlA-zdh_bQBo

30
Teaching Economics Using Media Hearing From The
Experts
  • Teaching economics through media is a response
    to the work done by William Becker and Michael
    Watts (1998, 2001, 2003, 2004, 2006) who examined
    the way that economics was taught at the college
    level and found that the discipline had been slow
    to adopt innovative approaches to teaching.
  • Preliminary evidence from Girardi (2008) and
    Raehsler (2009) suggests that using media in
    introductory courses makes economics more
    relevant to students, increases class attendance,
    and raises examination scores.

31
Teaching Economics Using Media Hearing From The
Experts
  • Using media is especially good for cognitive
    reasoning. Bloom's (1956) taxonomy lists the
    following cognitive functions data recall,
    comprehension, application, analysis, synthesis,
    and evaluation. Many media provide the
    opportunity for instructors to activate all six
    cognitive domains.
  • Source http//serc.carleton.edu/econ/media/using_
    media_enh.html

32
Teaching Economics Using Media Professors
Experience
  • Topic immediately engaged students since they saw
    its significance in their daily lives.
  • The choice of multiple viewpoints through video
    clips emphasized the complexity of the issue and
    the positions on them, moving students away from
    the fiction that debates invariably have neat
    pro- and con-divisions.

33
More Lessons From A Personal Perspective
  • The variety of teaching methods used in this
    course, mostly the non-traditional teaching
    techniques such as the use of video clips
    connected to the Mysterious character as well
    as the Where Do I Stand exercises that the
    students had to carry out, increased students in
    class participation and their interest in the
    course significantly.

34
Lessons From The Students Perspective
  • This strategy paid off in multiple ways as
    reflected by the student evaluations.
  • First, it increased the appeal of the
    presentation and offered opportunities for
    critical thinking while allowing for extensive
    use of multimedia.
  • Second, it made economics less abstract and
    easier to understand by clearly connecting it to
    reality.
  • Third, it allowed students to present a character
    of their own choice (and theory one not
    presented in class) an eloquent proof of
    independent critical thinking which has shown
    that the course has attained its objectives.

35
Course Instructor Evaluation By Students
Narratives
  • Content related
  • The course was very informative about whats
    happening in the world today and was very
    applicable to current events.
  • I learned more than I expected in the course of
    a week.
  • The course helped me thoroughly understand the
    causes and possible routes the US could take to
    resolve the problems with our economy.
  • The course made me a more informed citizen.
  • I felt much more enlightened after taking this
    class. I feel like I am so much more aware of
    whats going on in the world because of this
    course.

36
Conclusion
  • Overall, the short course was a success.
  • Four factors are responsible for its popularity
  • Its emphasis on a contemporary topic (the current
    recession) and using DVDs and video clips of
    multiple contemporary economists (rather than
    print sources).
  • Its significance to students daily lives.
  • Its ability to convey a large amount of
    up-to-date information in a short time and a
    palatable way by using carefully chosen
    multimedia materials.
  • Its ability to generate critical thinking by
    offering students the freedom to voice their own
    opinions and defend them in front of a peer
    audience.
  • Can we replicate this for a semester-long course?
    We will try in the fall of 2015!
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