October 2015 newsletter – MMFRG – Annual Conference

The 47th Annual Conference of the MMFRG took place at Cardiff Business School on 9th-11th September. This report comes from Huw Dixon.

Cardiff is perhaps best known for the rift in the time-space continuum through which strange creatures arrive to battle with Dr Who. It is also well known in some countries for pitched battles between groups of muscular men throwing an odd shaped ball about. Hence, there was little to shock the locals when 150 macroeconomists arrived from around the world for the 47th annual MMF conference held at Cardiff Business School.

The conference opened in the afternoon with a keynote address by Guiseppi Bertola, from the ‘Grande Ecole’ EDHEC business school in Paris. His theme Money, Finance and Labour Markets, was a familiar one which he has been developing for some years: how the Euro has changed the incentives for member states to undertake regulation and reform in financial and labour markets. How the median voter in a member state might gain or lose from market deregulation will depend on how capital rich a country is, whether it has a current account deficit and so on. Labour market deregulation, for example, is more likely when there is a current account surplus and financial market access is limited. After an afternoon of fascinating parallel sessions, the Bank of England provided a welcome reception for the ever-thirsty macroeconomists.

Like Cardiff, Chicago is also known for groups of men struggling over an oddly shaped ball. On the second day, Chicago’s Harald Uhlig gave his keynote talk on Financial Health Economics. His talk started with a fact: however measured, there is an excess return to health related equity in the US. Over many decades, health has been a good earner — the medical innovation premium of 4-6 per cent has led to high real expenditures of R&D and a growing share of health in GDP. Uhlig then argued that the cause of this premium is regulatory risk. There is a risk that the US government will intervene in the healthcare market in a way that will reduce the profitability of the sector (for example the introduction of price controls on drugs). He supported this view with the behaviour of share prices and real spending during the Clinton years, when reforms were planned by the administration but failed to be implemented. Showing his Minnesotan heritage, he ended his talk with a calibration of his theoretical model that matched the data.

Cardiff's very own Patrick Minford, CBE, gave the MMF special lecture A new approach for policy makers to testing models and policies. He made the case for Indirect Inference methodology that has been developing for the last decade as an alternative to maximum likelihood and Bayesian approaches. Policy makers need models that are consistent with the data, robust to the Lucas critique and which can be estimated in a way that can clearly distinguish true from false models. The main advantage of indirect inference, he argued, was that the test of the validity of the model is a Wald test which has more power than the corresponding tests under maximum likelihood. This means that false models are more easily rejected, so that policy makers can be more confident that models that are shown to be consistent with the data under this methodology can be used with more confidence for analysing policy alternatives. Prior to his lecture, there was a session given by those taught or supervised by him, David Meenagh, Michael Hatcher, Christos Ioannides and Martin Ellison, who had somehow managed to obtain some wonderful pictures of Minford at various stages in his life and was able to link these to the behaviour of the UK national debt. The simultaeous parallel session organised by Jane Binner (Birmingham) on Money and Macro Models was no less enthralling, and left some of us wishing we had a Tardis.

After a full second day, we went to a sumptuous dinner held at the National Museum of Wales and funded by Lloyds bank. We had a champagne reception amidst the excellent art collection on the first floor. We heard from guest speakers, including the Welsh government minister Edwina Heart, Trevor Williams, the Chief Economist of Lloyds and the Dean of Cardiff Business School, Martin Kitchener. Trevor outlined the risks to the global recovery and the nature of the likely policy response. In his thank you speech, the Chair of the MMF, Jagjit Chadha, was left rather ambivalent at the success of the conference and having, yet again, to give away so many bottles of whisky. For most of us the detail of the evening is a bit hazy and as impressionistic as the Monet paintings we had just seen. An excellent time was had by all. 

There was much else at the conference. The new and extensive trading room was made available for participants in a special session led by Woon Wong, Teaching and research using a financial laboratory. There were of course several special sessions on aspects of policy: Jean-Bernard Chatelain chaired a session on optimal macroeconomic policy sponsored by GDRE one on the Great Recession chaired by Claudio Morana and sponsored by Rasta news; there were sessions on money and monetary policy, the new European financial architecture and credit shocks and regional finance. As always, there were many papers delivered by PhD students and I was present for two sessions and saw the paper on the determinants of sovereign credit ratings presented by Arno Hantzsche of Nottingham University which was awarded the prize for the best paper presented by a PhD student. In total there were 46 sessions with 138 papers given.

The conference ended on a high note with external monetary policy committee member Kirstin Forbes from MIT in Shakespearian mode giving a one person performance of much ado about something; how do exchange rate movements affect inflation? The Sterling exchange rate has moved a lot — as they do tend to do. Indeed, some of the older members of the audience, amongst whom I number, could remember when the dollar rate went from $2.40 in 1980 to almost parity in 1985. She reviewed the theories she had been taught at grad school and showed that so far as the UK evidence was concerned, they were of little use. There is clear evidence that the extent of exchange rate pass through has varied. The big fall in Sterling against the Euro and Dollar in 2008-9 is the prime suspect for the high inflation that followed, yet after Black Monday in 1992 there is little evidence of the increase in inflation that many economists predicted at the time. Forbes put forward the idea that the extent of pass through depends on the type of shock underlying the change in the exchange rate. Thus, for example, a change caused by a productivity shock might well be different to one induced by world demand. She presented an empirical SVAR model to show that different types of shocks gave place to different impulse response functions and that the type of shock is crucial in determining the extent of pass through.

The conference was almost over, but for some the most important part was left. A field trip to explore the state of UK industry in the post-industrial Welsh valleys. A bus took 40 of us to visit the Penderyn Whisky distillery, a highly successful firm near Merthyr Tydfil that has been growing rapidly since its foundation in 2000. I now know exactly how whisky is made, although it remains a mystery to me why anyone would want to drink it. However, for the whisky enthusiasts the tasting room at the end of the tour was the perfect way to finish the conference.

Conference papers are available from:


and the Manchester School will be publishing its 25th MMF special conference issue later this year: