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The International Seminar on Macroeconomics.

The International Seminar on Macroeconomics (ISOM), founded in 1978, was one of the earliest collaborative activities of the NBER with economists and organizations in Europe. The proceedings of all but the first of this annual conference series have been published as special issues of the European Economic Review (EER). This retrospective article traces the origin and organizational aspects of the ISOM that have contributed to its success. Subsequently the article turns to some of the main themes of international and comparative macroeconomic that emerge from the record of more than a decade of ISOM conferences. (1)

Origin and Organization

In 1977-8 international economic and political relations between Europe and the United States were strained by debates over the distribution of oil deficits, the desirability of expansionary demand policies, and the necessity of intervention in currency markets. Academic controversy raged over the interpretation of the new macroeconomic environment of the 1970s, especially policy responses to oil price shocks and the potential for monetary independence under flexible exchange rates. The development of academic macroeconomics since World War II had been dominated by Americans, but their models suffered from a closed-economy orientation that failed to incorporate many of the distinctive features of the 1970s. Europeans, who were born internationalists, nevertheless (with some notable exceptions) had been on the periphery of academic developments since the war, reflecting many influences, including the interwar emigration of talented economists from central Europe, the increasing dominance of the English language in academic economics, and the lead of Anglo-American academics in developing the new postwar toolkit of mathematical theory and econometrics.

This setting of international discord, theoretical controversy, and transatlantic academic imbalance combined to spur the conception by Martin Feldstein, NBER president, that an international seminar should be organized. Feldstein met in Paris with Georges de Menil, and they framed the joint sponsorship of the seminar by the NBER and the Maison des Sciences de l'Homme (MSH).(2) I was then designated by Feldstein as the co-organizer of ISOM with de Menil.(3)

The coorganizers made several early decisions that have shped ISOM since its first meeting. To avoid the intellectual dominance of American macroeconomics, the seminar was designed with a format explicitly to promote European participation. Rather than alternating between the United States and Europe, the conference is always held in Europe.(4) In a two-day conference with seven formal paper presentations, at least five of the papers are authored solely by Europeans or have at least one European cauthor. But an equal transatlantic balance is maintained among the formal conference discussants: there are two for each paper, one from each side of the Atlantic. The overall list of participants consists roughly of one-third Americans and two-thirds Europeans. Beginning in 1983, the definition of non-American was broadened to include Japanese economists.

As the ISOM evolved, these decisions on format have been instrumenta in its success. The skiwing of authors and participants away from Americans helped to establish the atmosphere of an intellectual common market among the European participants, balanced by the transatlantic perspective provided by the discussants. A stable and broad-based program committee, virtually intact since the first meeting, has provided an important element of continuity that has helped maintain the "style" of the ISOM; members of the program committee not only attend each meeting and advise on the merits of potential future authors, but also serve frequently as discussants. (5)

The financing of the conference has been shared by the NBER with the MSH, acting as an umbrella organization that channels the contributions of different national European organizations. In addition, the Banque de France, Banca d'Italia, Banca d'Espana, Oxford University, Universitat Mannheim, les Facultes des Universitaires Notre-Dame de la Paix (Namur, Belgium), and the Japanese Ministry of Finance all have provided local facilities and support, and a second meeting in Oxford in 1992 will be supporte4dr by the Bankl of England. [6]

A special annual issue of the EER became the publication outlet of the ISOM after its first conference, an achievement attributable in large part to the dual role of Jean L. Waelbroeck as coeditor of the EER and member of the ISOM program committee. Starting with the proceedings of the second ISOM conference of September 1979, published in May 1980, we have maintained a tradition of prompt publication. In 1987 the EER became the official journal of the European Economic Association (EEA), and the EEA thus found that it had inherited a successful and ongoing project. To establish a formal link between the ISOM and the EER, the EEA decided provisionally to become a third cosponsoring organization of the ISOM (with the NBER and MSH), subject to periodic review.

The defining features of the ISOM conference series can be established by comparison to four other ongoing macroeconomic conference series with regular publication outlets. Established since 1970 and 1973, respectively, the Brookings Panel on Economic Activity (BPEA) and the Carnegie-Rochester Conference Series (CRCS) primarily involve U.S. economists and invite papers of current policy relevance and interest to an audience both inside and outside the academic community. [7] The closet counterpart to these American series in Europe is Economic Policy, founded in 1985, which follows a format closely modeled on the Brookings Panel and focuses on issues of pan-European interest in both micro and macro policy. Another relatively recent arrival is the NBER Annual Conference on Macroeconomics, founded in 1986, which differs from both the BPEA and CRCS in paying more attention to recent developments in frontier macroeconomic research and methodology, and less to short-run policy issues. [8]

Although antedating the NBER macro conference, the ISOM shares its emphasis on frontier research topics. Otherwise, the ISOM differs from the four other conference series in its transatlantic (rather than mainly American or European) orientation, in its greater emphasis on both international and comparative macroeconomics, and in its lesser emphasis on doctrinal disputes in domestic macroeconomics. Few ISOM papers are devoted entirely to theory, and ISOM authors are encouraged to provide a comparative empirical analysis on data for two or more countries.

Main Themes

Including the forthcoming 1991 conference, exactly 100 papers have been presented at the ISOM since its founding. Originally the seminar covered a wide variety of topics in each annual conference, but since 1984 there has been a unifying theme for most of the meetings. One can trace the response of international and comparative macroeconomics to changing world events by extracting the main themes presented at the ISOM. [9]

Exchange Rates and International Adjustment. The core issues of international monetary adjustment have always been high on the ISOM agenda, but there has been a shift in emphasis. Early ISOM papers explored the implications of the flexible exchange rate system for monetary policy, inflation, and disinflation. The facts that real exchange rate are violate, and that flexible exchange rates did not insulate domestic policy from international shocks, were recurring themes. [10] By the mid-1980s attention had shifted to the implications for international policy coordination of U.S. fiscal deficits and the sharp rise in the dollar. [11] Subsequently the effects of the European Monetary System (EMS) moved to center stage. The transatlantic friction associated with the volatile exchange rate of the dollar contrasted with the convergence of economic policies and inflation rates with the EMS group of countries. The volatility of the dollar led to increased interest in "target zones" and "managed floating," while the apparent success of the EMS spurred research on central bank credibility and the advantages of "tying one's hands." [12]

Labor Markets and Macroeconomic Adjustment. The years of the ISOM witnessed the failure of the European unemployment rate to follow U.S. unemployment down to pre-1980 levels, as the world economy recovered in the 1980s. A central theme, developed in a seminal paper at one of the first seminars, was that differences in U.S. and European performance could be traced to wage adjustment; the United States experienced "nominal wage rigidity," while Europe suffered from "real wage rigidity." [13] As the 1980s evolved, however, European real wage growth moderated markedly, indicating that European unemployment was not mainly classical in nature, but rather revealed an inadequacy of aggregate demand. [14] A related issue was the unsatisfactory rate of productivity growth in the United States relative to that in Europe, which ISOM papers tied to numerous causes, including U.S. fiscal deficits and "running out of ideas." [15] A subsidiary theme was the role of housing markets and job security legislation in creating barriers to labor mobility and growth in both Europe and Japan. [16]

Debt and Deficits. Dominant policy themes in the 1980s were the causes and effects of fiscal deficits, particularly in the United States, and solutions for the growing debt burden of less-developed countries and, later, Eastern Europe. Important theoretical papers explored the sources of differing levels of deficits across countries, and the long-run implications of debt. [17] New theoretical insights also were provided on the determinants of external debt under risk of default, and the role of external debt in the Great Depression of the 1930s. [18]

Real Trade and Economic Integration. In the late 1980s the EMS seemed to be successful in achieving a convergence of European inflation rates, and many of the industrial economies experienced renewed growth and declining unemployment. In response, the focus of the ISOM turned from international monetary issues to the problems posed by the forthcoming integration of Europe in 1992, concentrating on issues raised by imperfect competition and barriers to mobility in factor markets. (19) Also examined was the difficulty of interpreting trade imbalances, stemming from potential confusion among the effects of exchange rate changes, supply shifts, and unequal income elasticities of demand. (20)

Comparative Studies. The ISOM has always fostered comparative empirical research. In addition to studies reviewed above, others providing empirical estimates for two or more countries cover a wide range of topics (and are too numerous to cite separately here). On traditional topics of "domestic" macroeconomics we have published comparative studies of consumption, investment, the demand for money, the demand for factors, "Okun's Law," and the formation of price expectations. Comparative studies with a supply-side emphasis have treated productivity levels, productivity growth at the sectoral and firm level, and the measurement of profit rates.

In conclusion, this brief review provides numerous examples of the dynamic development of economics, in which the evolution of events continually provokes the development of new theoretical ideas and the setting for new empirical studies. The ISOM will continue to explore the most important issues in international monetary and real economics, and will continue to encourage more economists to engage in comparative research that illuminates the many puzzles in the divergent evolution of industrial economies.

(1) A summary of the ISOM conference proceedings appears annually in the fall issue of the NBER Reporter.

(2) William H. Branson, director of the NEBR's Program in International Studies, also was involved in the early discussions, particularly stressing the need for an equal transatlantic institutional collaboration with roughly equal funding from both sides.

(3) In keeping with out division of responsibilities, I have written this report to the NBER community on the activities of the ISOM, with helpful input and suggestions from de Menil and Feldstein.

(4) The sole exception was the First Asian Meeting of the ISOM, held in Tokyo in June 1988.

(5) Members of the program committee since the outset have been Giorgio Basevi, William H. Branson, John S. Flemming, Heinz Konig, and Jean L. Walbroeck. Several years later they were joined by Jacob A. Frenkel and Jacques Mairesse. Masaru Yoshitomi joined the committee in 1986, to be replaced in 1989 by Koichi Hamada.

(6) The ISOM met at the local facilities of the MSH in 1978, 1979, 1981, and 1983. It was hosted by the Banque de France in 1985 at Avalon, in 1987 at the Chateau de Ragny in Burgundy, and in 1989 at the Chateau de la Vrilliere in Paris. Other meetings were held in Oxford in 1980, Mannheim in 1982 and 1990, at the Perugia (SABIDA) conference center of the Banca d'Italia in 1984, in Namur, Belgium in 1986, and in Tokyo in 1988 at facilities provided by the Japanese Ministry of Finance. Financial support for the Tokyo meeting was shared by the Ministry of Finance and FAIR (Foundation for Advanced Information and Research).

(7) The Brookings Papers on Economic Activity series has been published since 1970 by the Brookings Institution in Washington (and added an additional micro policy meeting and issue in 1988), while the Carnegie-Rochester Conference Series has been published since 1976 by North-Holland.

(8) Economic Policy is published as a periodical, with two issues per year, by the Cambridge University Press, The NBER Macroeconomics Annual is published by the MIT Press.

(9) The following footnotes provide a representative selection of authors and paper titles; parenthetical references to individual papers indicate the year of publication in the European Economic Review.

(10) This recognition is dramatized in the title of Jacob A. Frenkel's paper, "The Collapse of Purchasing Power Parities in the 1970s" (1981). See also Willem H. Buiter and Marcus M. Miller, "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation" (1982).

(11) This was the theme of the 1984 conference. See Paul R. Masson and Adrian Blundell-Wignall, "Fiscal Policy and the Exchange Rate in the Big Seven: Transmission of U.S. Government Spending Shocks" (1985); John B. Taylor, "International Coordination in the Design of Macroeconomic Policy Rules" (1985); Kenneth S. Rogoff, "Can Exchange Rate Predictability Be Achieved Without Monetary Convergence?" (1985); and Alessandro Penati, "Monetary Targets, Real Exchange Rates, and Macroeconomic Stability" (1985).

(12) John Williamson and Marcus M. Miller, "The International Monetary System: An Analysis of Alternative Regimes" (1988); Francesco Giavazzi and Marco Pagano, "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility" (1988).

(13) William H. Branson and Julio J. Rotemberg, "International Adjustment and Wage Rigidity" (1980).

(14) Dennis Grubb, Richard Jackman, and Richard Layard, "Wage Rigidity and Unemployment in OECD Countries" (1983); Wolfgang Franz, "The Past Decade's Natural Rate and the Dynamics of German Unemployment: A case Against Demand Policy?" (1983); Olivier J. Blanchard and Lawrence H. Summers, "Fiscal Increasing Returns, Hysteresis, Real Wages, and Unemployment" (1987); and Robert J. Gordon, "Productivity, Wages, and Prices and inside and Outside of Manufacturing in the United States, Japan, and Europe" (1987).

(15) William D. Nordhaus, "Economic Policy in the Face of Declining Productivity Growth" (1982); and John F. Helliwell, Peter H. Sturm, and Gerard Salou, "International Comparison of the Sources of Productivity Slowdown, 1973-82" (1985).

(16) Gordon Hughes and Barry McCormick, "Housing Markets, Unemployment, and Labour Market Flexibility in the United Kingdom" (1987); Hiroshi Yoshikawa and Fumio Ohtake, "An Analysis of Female Labor Supply, Housing Demand, and the Saving Rate in Japan" (1989); and Giuseppe Bertola, "Job Security, Employment, and Wages" (1990).

(17) Olivier J. Blanchard, "Current and Anticipated Deficits, Interest Rates, and Economic Activity" (1984); Giuseppe Tullio, "Long-Run Implications of the Increase in Taxation and Public Debt for Employment and Economic Growth in Europe" (1987); and Nouriel Roubini and Jeffrey D. Sachs, "Political and Economic Determinants of Budget Deficits in the Industrial Democracies" (1989).

(18) Jonathan Eaton, Mark Gersovitz, and Joseph E. Stiglitz, "The Pure Theory of Country Risk" (1986); Daniel Cohen and Jeffrey D. Sachs, "Growth and External Debt Under Risk of Debt Repudiation" (1986); and Barry J. Eichengreen and Richard Portes, "Debt and Default in the 1930s: Causes and Consequences" (1986).

(19) See especially Victor D. Norman, "Assessing Trade and Welfare Effects of Trade Liberalization" (1990); Anthony J. Venables, "The Economic Integration of Oligopolisitic Markets" (1990); and Richard E. Baldwin, "Factor Market Barriers Are Trade Barriers: Gains from Trade from 1992" (1990).

(20) Paul R. Krugman, "Differences in Income Elasticities and Trends in Real Exchange Rates" (1989).
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Title Annotation:conference managed by National Bureau of Economic Research
Author:Gordon, Robert J.
Publication:NBER Reporter
Date:Mar 22, 1991
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