Research group

Macroeconomics

World stock market stock illustration

Macroeconomics at Southampton spans a variety of research directions, and emphasises building models of aggregate behaviour by adding up the behaviour of individual economic agents. The researchers in the group strive to advance the methodology of macroeconomic modelling to increase its power and flexibility for understanding society and inform policy.

Part of Economics

About

The research of the group falls mainly in one of the following areas: 

  • Business cycles and stabilisation policy: The group studies the aggregate effects of microeconomic frictions and their policy implications. Some work considers nominal rigidities in prices and wages, and their impact on economic activity in the presence of long-run distortions. Other work studies how informational frictions generate a need for monetary assets to facilitate transactions. These frictions hinder the optimal decision-making by households and firms and thus give scope for policy intervention. In particular, the group investigates how fiscal and monetary policies should respond to changes in economic activity in a variety of circumstances like in open economies and in the presence of demographical changes. 
  • Macroeconomics with heterogeneous agents: The economy is composed of a multitude of economic agents (households and firms) that differ along many important dimensions. Macroeconomics has evolved from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This allows one to study the main determinants of economic inequality and distribution of income and wealth, how it interacts with the macroeconomic aggregates and how it is shaped by the policies of the government. The study of macroeconomic dynamics, especially the models that involve heterogeneous agents, rarely have analytical solutions, and often require the use of numerical computational methods.
  • Macroeconomics and the family: While macroeconomics is ultimately about aggregate variables, many of them such as human capital, labour, and population are shaped at the family level. Parental investments shape how children’s human capital is formed, which then becomes the basis for their labour inputs later in life. Childcare not only affects children directly but also parents, especially mothers, whose labour supply matters for the national economy. Fertility impacts the future workforce, and macroeconomists study how this behaviour is shaped by different forces at the family and national level. These family-macroeconomic studies can guide policymakers to better understand the mechanisms and efficacy of various expanding family policies.
  • Computational methods: Our work provides methods for solving dynamic macroeconomic models, including models with heterogeneity in beliefs, wealth or income and forward-looking agents. Some of our work provides methods for finding approximate solutions to analytically intractable problems, such as large-scale or highly nonlinear models with transition dynamics. Other work deals with piecewise-linear models, such as those with structural change or inequality constraints, and provides recursive algorithms that find exact solutions. 
  • International trade: Our research investigates how to design domestic and trade policies in contexts where policymakers are bounded to use policy instruments. Some work revisits the questions of the purpose and design of trade agreements in the presence of intra-industry trade, multiple sectors and potentially heterogeneous firms.  Another line of work explores the design of trade policies in the presence of environmental externalities. In particular, it researches how to design border adjustment mechanisms that prevent carbon leakage induced by a domestic rise in carbon prices. 

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