Putting the macroeconomy under the microscope
, was a strange one for her chosen discipline of macroeconomics. It marked a turning point between complacent consensus and humiliating division. Pre-crisis macroeconomics had such strong faith in the stabilising power of monetary policy that it neglected the dangers of financial shocks and the merits of fiscal stimulus. Like joining the cavalry in 1914, it was presumably a bad time to be entering the profession.
For students of economic ups and downs, the crisis also met a crying need: for a new data point, a new down-and-up to examine. The lack of data had made macroeconomics unfashionable. Its practitioners crunched the same quarterly, national numbers, which failed to illuminate ever more refined theories of how the economy worked. Microeconomists were having all the fun, plundering new sources of evidence and reinventing old techniques for divining cause and consequence.
To study fiscal stimulus, they divided America into its constituent states . That enabled them to measure the impact of extra Pentagon spending on states with a large defence industry, relative to those without. And to illuminate monetary policy, they turned from the usual yearly or quarterly data to finer slices of time, examining the impact of unexpected Federal Reserve actions and utterances in the minutes after they reach the markets.
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