Katarina Juselius - On the Role of Theory and Evidence in Macroeconomic Modeling

The Inaugural Conference @ King's, Institute for New Economic Thinking, Session 5.

How Empirical Evidence Does or Does Not Influence Economic Thinking and Theory: Calibration, Statistical Inference, and Structural Change.

[nthperson]

Yes, of course, the role of financial markets is an accelerator of cycles, although the cycles are driven by the inherently speculative character of underlying land markets. In the real world, the price mechanism does not clear land markets. Rather, rising prices for land provide incentives to those who hold this non-depreciating asset to hold land off the market for greater gains and to acquire additional land. Moreover, there are many owners of land who have sufficient financial resources to acquire and hold large landed estates with no intent to develop such land or sell it. How is this reflected in growth models? It is not. Under the conditions I have described, the supply curve for land (i.e., for locations) can be leftward leaning.