Economic Theory and Acadmics — Alpha.Sources

Fiscal dominance is here, or is it?

One of the more useful AI tools that I have set up recently is a bi-weekly macro and demographics theme scout, which collects material on a given topic and runs through a number of recent and older sources, and synthesises this material into a brief essay, as well as a text to speech (TTS) document so that I listen back with the ElevenLabs text-to-speech app.

I thought it might be useful to recycle some of this material on the blog. One of the topics my AI scout landed on earlier this year was fiscal dominance, and whether developed markets are now slipping into this regime after a long period in which monetary dominance—activist monetary and passive fiscal policy—was the norm. I would frame the question like this. Has fiscal largesse during Covid, the subsequent fiscal support to protect against sequential global supply shocks in energy, and more generally deglobalisation and a focus the government balance sheet as a strategic lever for economic security pushed monetary policy into a Sargent and Wallace world of "unpleasant arithmetic”?

Here is the essay with some additions by me and more recent contributions.

December 23 - Currency Crisis Models

The economics of currency crises has evolved through successive “generations” of models, each reflecting the historical experience and intellectual climate of its time. From the fixed exchange rate collapses of the 1970s to the financial crises of the 1990s and beyond, economists have sought to explain why speculative attacks occur, how they unfold, and what policy choices can prevent or exacerbate them. The three generations of models—spanning from mechanical balance-of-payments inconsistencies to self-fulfilling expectations and financial fragility—together trace a trajectory from deterministic to strategic and behavioural understandings of crises. Yet, in a modern world of complex capital markets and hybrid monetary regimes, each generation’s insights also reveals its limitations.

December 22 - Business Cycle Theory

The economics of business cycle theory revolves around understanding the recurrent fluctuations in aggregate economic activity—expansions and contractions—that characterize market economies. These cycles, while irregular in timing and amplitude, display certain regularities in employment, production, investment, and prices. Over the past century, economists have developed two main traditions in explaining them: one empirical and inductive, epitomised by the work of Geoffrey H. Moore and Victor Zarnowitz; the other theoretical and deductive, culminating in Real Business Cycle (RBC) theory. The contrast between these approaches highlights a broader tension in macroeconomics between data-driven description and model-based explanation.

December 20 - The economics of discrimination

Discrimination has long been a central topic in the study of labour markets and economic behaviour, with economists attempting to understand not only its moral and social implications but also its economic causes and consequences. At its core, the economics of discrimination explores how differences in treatment based on race, gender, ethnicity, or other characteristics affect employment, wages, and productivity, and how market forces interact with these behaviours. The field was first formalised in Gary Becker’s The Economics of Discrimination (1957), which applied the tools of microeconomics to the question of why discrimination persists and under what conditions it might diminish. Later contributions, including those of Thomas Sowell, further investigated the incentives shaping discriminatory practices and the economic outcomes across different groups.

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