This lecture is about how best to evaluate economic theories in macroeconomics and finance, and the lessons that can be learned from the past use and misuse of evidence. It is argued that all macro/finance models are `false' so should not be judged solely on the realism of their assumptions. The...

A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This...

The downturn in the world economy following the global banking crisis has left the Chinese economy relatively unscathed. This paper develops a model of the Chinese economy using a DSGE framework with a banking sector to shed light on this episode. It differs from other applications in the use of...

This paper is concerned with methods for analysing spatial data. After initial discussion on the nature of spatial data, including the concept of randomness, we focus most of our attention on linear regression models that involve interactions between agents across space. The introduction of...

This paper gives money a role in providing cheap collateral in a model of banking; this means that, besides the Taylor Rule, monetary policy can affect the risk-premium on bank lending to firms by varying the supply of M0 in open market operations, so that even when the zero bound prevails...

In this paper, we employ both calibration and modern (Bayesian) estimation methods to assess the role of neutral and investment-specific technology shocks in generating fluctuations in hours. Using a neoclassical stochastic growth model, we show how answers are shaped by the identification...

There is a fast growing literature that partially identifies structural vector autoregressions (SVARs) by imposing sign restrictions on the responses of a subset of the endogenous variables to a particular structural shock (sign-restricted SVARs). To date, the methods that have been used are...

This paper studies German bank lending during the Asian and Russian crises, using a bank level data set from the Deutsche Bundesbank. Our aim is to gain more insight into the pattern of German bank lending during financial crises in emerging markets. We find that German banks reacted to the...

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idyosincratic shocks which may force them to default on their debt. Firms' assets and liabilities are denominated in nominal terms and predetermined when...

Because of recent economic crises, financial fragility has regained prominence in both the theory and practice of macroeconomic policy. Consistent with macroeconomic paradigms prevalent at the time, the original architecture of the euro zone assumed that safeguards against inflation and...