ESRC large grant

“We are striving to answer the big question: how do financial and labour markets interact, and how does that interaction affect the macroeconomy? We are not the first to ask this: economists have been wrestling with it since John Maynard Keynes in the Great Depression of the 1930s.

The recent financial crisis has served to underline the question, and in many ways to embarrass the economics profession about the poverty of our understanding of how the macroeconomy works. It is revealing that people such as Sir Charles Bean at the Bank of England said that they had to fall back on Keynes’s original framework to make sense of what happened in the crisis.

The award is the culmination of a long strategy that we have been pursuing in the School of Economics. Since 2000 the University of Edinburgh has recruited academic staff who work at the interface of micro and macroeconomics, both theorists and applied economists. The key markets are labour and finance - that’s where things seem most obviously to go awry - and many of our new faculty have expertise in those areas.

A crucial element to the success of this project will be the contribution of our outstanding international collaborators from Europe and the US. They will spend considerable periods of time with us (and importantly with each other) in Edinburgh.

This ESRC award will enable a group of scholars who share common goals and understand each others' methods to address a fundamental economic question. It is going to take at least five years to find answers. This is ambitious, high risk research. We will learn much in trying. If we succeed, then we might have contributed to the reconstruction of macroeconomics."