UK Economics University Rankings Released (2026) - Cambridge top, LSE, Oxford, St. Andrews and Warwick in top five
The Complete University Guide has unveiled its 2026 league tables, highlighting the top universities for Economics in the UK. The rankings provide a comprehensive evaluation of institutions based on several criteria, including teaching quality, student satisfaction, and graduate prospects. Prospective students can utilize the league tables to make informed choices about their education by comparing universities based on important factors such as entry standards, research quality, and continuation rates. The ranking is compiled from data collected between 2019 and 2024. The top five remain unchanged since the 2025 edition, with Cambridge topping the overall table, followed in the top five by LSE, Oxford, St. Andrews and Warwick. Cambridge again scored highly across all categories, although the economics department at St. Andrews topped the table for entry standards, pipping Cambridge and Oxford. St. Andrews also outperformed the overall top ten for student satisfaction, coming third overall for this measurement. Other universities performing well for econ student satisfaction included the University of Hertfordshire (first for student satisfaction, 59th overall) and Herriot Watt University (second for student satisfaction, 28th overall). LSE and Warwick lead the field in economics research quality, followed by University College London (third for research quality, seventh overall), Cambridge and Nottingham (eighth overall). Cambridge led the field in terms of "continuation", roughly an inverse measurement of the drop-out rate, with an impressive 100% of first year econ students continuing their studies (if not at Cambridge, then at another institution). St. Andrews, Nottingham and Durham also performed well in this measurement, with 99% of economics freshers continuing their studies after their first year. In terms of graduate prospects, defined as the percentage of economics graduates who were in "skilled" employment within fifteen months of graduation, Cambridge again led the field, with 96%, closely followed by UCL, LSE and Kings College London (all 95%) and Oxford (94%). A second measure of graduate prospects measured how many students were "on track", who in a survey agreed that their postgraduate study or employment fit with their future plans. In this measurement Cambridge shared first place with the economics departments at Keele University (47th overall) and the University of York (18th overall). Notable improvements in the overall ranking include economics departments at the University of Nottingham (8th overall, up from 12th in 2025), University of Exeter (11th, up from 14th), Cardiff (21st, up from 25th), Strathclyde (23rd, up from 28th), Herriot-Watt (28th, up from 34th), the University of Leicester (37th, up from 47th) and the University of Plymouth (40th, up from 57th). New entries to the table were the economics programmes at Northumbria University (in at 66th), Liverpool Hope University (71st) and the University of Roehampton (74th). With the latest data available, students looking to pursue an Economics degree can explore and compare various UK universities to find the best fit for their academic and professional aspirations. Image Credits: thecompleteuniversityguide.co.uk
The Complete University Guide has published its 2026 league table for undergraduate Economics programs at UK universities, offering prospective students valuable insights into the best institutions to consider for their economics studies. As last year, the University of Cambridge tops the table.
Christian Schulz Appointed Chief Economist at Allianz Global Investors
Allianz Global Investors (AllianzGI), a prominent player in active asset management, has unveiled that Christian Schulz will join the organization as Chief Economist beginning July 1, 2025. In his new role, Schulz will take charge of the Global Economics & Strategy team, producing essential macroeconomic research and market insights that will help shape investment strategies across the firm. Michael Krautzberger, CIO of Public Markets at AllianzGI, praised Schulz’s unique ability to integrate long-term economic forecasts with short-term data analytics. His expertise is expected to be particularly beneficial in asset classes influenced by macroeconomic events. "His international background fits perfectly with our collaborative culture," Krautzberger stated. Schulz is known for his established presence in the media and is anticipated to bring forward his insights on investment opportunities and risk management to clients in the near future. Previously, he served as Deputy Chief European Economist at Citigroup Global Markets, where he played a pivotal role co-managing the European Economics team and focused on various key markets, including Germany and the European Central Bank. Schulz holds a Doctorate and a Master in Economics from the University of Hamburg and completed his BSc in Financial Economics at the University of St Andrews. AllianzGI is committed to nurturing top talents in the finance sector, which is evident in their latest recruitment aimed at enhancing their strategic capabilities for future investment success. Image Credit: Allianz Global Investors
Allianz Global Investors has announced the appointment of Christian Schulz as Chief Economist, effective July 1, 2025. He will lead the firm's Global Economics & Strategy team, contributing to macroeconomic research and market insights aimed at enhancing investment portfolios.
Introduction to Sustainable Finance (Online Course)
We will analyze approaches to sustainable finance, evaluate the correlation between risk and return, and gain insight into the vital features responsible for successfully meeting environmental and social initiatives. We will also explore and evaluate the role of the public sector in sustainable finance, and analyze disruptive trends and the innovations necessary to manage them. At the end of this course, you will complete a case study that outlines how your organization can create your own sustainable finance initiatives and how you can be a key player in meeting those goals. Become a Sustainable Finance expert with a purpose by learning to integrate people, profits, and the planet into the bottom line. Who this course is for: Finance professionals currently in the industry, as well as those seeking to break in, will gain insight into how to best invest capital in order to promote a sustainable future. Instructor: Dominick Mitchell Dominick Mitchell is a leading expert in sustainable finance, with a passion for finance, international development, and sustainability. He has been recognized as the Youth Entrepreneur of the Year and has written a book on the topic, Finance Made Sustainable. In his work, Dominick assists social enterprises with their sustainable finance initiatives, helping them to solve social problems through engagement with the private sector. He also manages WVÉS, a water-focused impact fund that supports investees in achieving both social and financial returns. Dominick's ultimate goal is to mobilize the private sector to become more sustainably conscious and inclusive on a global scale.
Finance is widely seen as an obstacle to a better world. Financial services make up one of the economy's most important and influential sectors globally. Although results vary, most estimates place the financial services sector at around 20-25% of the world economy. Finance fosters growth, promotes entrepreneurship, favors education, alleviates poverty, and reduces inequality. In this online course, you will learn the essential role the financial system plays in reaching the United Nations Sustainable Development Goals and creating a globally sustainable economy. Students will learn how the current financial systems run, the factors that impact them, and the circulation of capital.
Economic Development, Innovation and Growth (JEL O)
Agricultural and Environmental Economics (JEL Q)
Olaf Sleijpen Appointed New President of Dutch Central Bank DNB
On the recommendation of DNB’s Supervisory Board, Minister of Finance Eelco Heinen on Friday nominated Olaf Sleijpen for appointment, by Royal Decree, as the new president of De Nederlandsche Bank (DNB), the central bank of the Netherlands. Sleijpen, who replaces the outgoing president Klaas Knot, will assume the role effective immediately. His appointment comes as the bank continues to navigate complex global and domestic financial landscapes. Sleijpen brings with him a wealth of experience in the financial sector, having previously served in several key roles within the bank. His expertise in macroeconomic policy and financial stability is expected to guide the institution as it addresses challenges such as inflation, digital currency integration, and evolving regulatory environments. De Nederlandsche Bank plays a pivotal role not only within the Netherlands but also in the broader Eurozone economy, with its policies impacting both national and regional economic strategies. As Sleijpen takes the helm, he is anticipated to emphasize proactive measures to enhance financial resilience. The transition in leadership at DNB comes at a critical time when economic forecasters are keeping a close eye on the implications of global economic shifts. Sleijpen's prior achievements and deep understanding of economic policies are expected to serve as advantageous assets for the institution. Martin van Rijn, chairman of DNB’s Supervisory Board welcomed the appointment, saying: “Olaf Sleijpen is an authority at the nexus of monetary policy, financial stability and European cooperation. He combines substantive depth with managerial experience, has a highly developed social compass and an extensive background at DNB, in both the monetary domain and supervision. We are confident that he will lead DNB with authority and vision during a period of complex economic and societal transitions." Sleiijpen has worked for major Dutch pension funds and at the European Central Bank. He studied economics at Maastricht University and obtained his PhD from the University of Groningen. Since 2007, he has been a Professor of European Economic Policy at Maastricht University. Image Credit: DNB
The announcement of Olaf Sleijpen as the new president of the central financial authority, De Nederlandsche Bank, marks a significant leadership change.
Public Economics & Economic Policy (JEL H)
Macroeconomics and Monetary Economics (JEL E)
Jenny Wilkinson Appointed as New Australian Treasury Boss
Wilkinson replaces Steven Kennedy, who in the same Announcement by Albanese will move to the Department of the Prime Minister and Cabinet. Wilkinson's appointment has been lauded by both past and future ministerial colleagues. In a statement, Jim Chalmers MP, the Australian Treasurer, with whom Wilkinson will now work, praised the contribution of Kennedy and said of the appointment: "I am really excited by this opportunity to work even more closely with Jenny, whose contribution as the Secretary of the Department of Finance has been instrumental to our first four budgets and so much of the broader work of our government." Further he emphasised the significance of the role being in female hands for the first time: "Jenny will make history as the first woman to lead the Treasury. Under our government women now lead the Treasury, Reserve Bank and Productivity Commission all for the first time. Jenny is one of Australia’s most distinguished and experienced economists and public servants and has served with distinction under governments of both political persuasions. I am really pleased that someone with her skills and experience will guide and lead the department, as we continue to develop and implement our economic agenda." The Minister for Finance, Senator Katy Gallagher, was similarly full of praise of her former secretary, noting in a statement: "I am thrilled to see Ms Wilkinson be the first woman appointed to lead the Commonwealth Treasury in its 124-year history." Like Chalmers, Gallagher also emphasises the example set to young female professionals by such high-profile appointments: "This appointment not only recognises Ms Wilkinson’s individual talent, skills and expertise, but it also serves as an important reminder for women and girls across the country that all positions in the Australian Public Service – no matter how senior – are roles that women can hold. I thank Ms Wilkinson for everything she achieved in Finance and for her support and advice to me as Minister for Finance." Wilkinson gained a Masters Degree in Public Affairs from Princeton University, and holds a Bachelors Degree in Economics from the Australian National University. She was awarded a Public Service Medal in 2021 for her contribution to fiscal policy, especially during the COVID-19 pandemic, during the response to which she was one of the architects of the Australian "JobKeeper" program. Image Credits: Australian Government - The Treasury / Australian Government - Department of Finance
Jenny Wilkinson has been named by Australian Prime Minister Anthony Albanese as new Secretary of the Treasury. Wilkinson is a prominent figure in Australian government and policy circles, who since 2022 has led the Australian Department of Finance. The appointment is particularly notable, as it is the first time in over 120 years that the key role at the Treasury has had a female incumbent.
S Mahendra Dev Appointed as New Chair of Indian Economic Advisory Council to PM
S Mahendra Dev, a noted academic and policy expert in economics, has been named the new chairman of the Economic Advisory Council to the Prime Minister (EAC-PM). His appointment comes after the death of Bibek Debroy, who chaired the EAC-PM since its reconstitution in 2017 until he passed away in November 2024. Mahendra Dev is highly respected for his research and contributions in agricultural policy, poverty reduction, and economic development. Until his appointment last week, he was a Director on the board of Axis Bank, and is a former director of the Indira Gandhi Institute of Development Research (IGIDR) in Mumbai. Dev’s work has been influential in shaping discussions on rural development and welfare policies, and he has held key advisory roles with various Indian government agencies as well as international organizations. As chair of the EAC-PM, Dev is expected to provide independent economic analysis and advice to the government during a challenging period marked by global economic uncertainties and India’s own development needs. Experts suggest that his academic background and policy experience could usher in renewed focus on rural and agricultural reform, while addressing issues related to inequality and sustainable growth. Dev’s appointment comes at a time when the Indian government is targeting robust economic growth, navigating global headwinds, and focusing on inclusive development. The EAC-PM plays an important role by offering data-driven policy recommendations and offering an independent view on economic matters. The government and the economic community have welcomed this appointment, expecting Dev to continue the EAC-PM’s tradition of independent, informed policy guidance. Image Credit: EAC-PM / Axis Bank
Eminent economist S Mahendra Dev has been appointed as the new chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), succeeding Bibek Debroy. Dev, renowned for his work in agricultural and developmental economics, brings decades of academic and policy experience to the position. The appointment is expected to influence India's economic policy direction, especially amid evolving economic challenges.
Top Economist Michael Weber to Join ESMT Berlin with Prestigious Humboldt Professorship
Michael Weber, internationally esteemed for his groundbreaking research in behavioral and macroeconomics, has been awarded the Alexander von Humboldt Professorship. Weber is currently a professor at the University of Chicago Booth School of Business, and plans to join ESMT Berlin in Spring 2026, pending final appointment negotiations. This will make ESMT the first business school in Germany to host the holder this elite award. The Humboldt Professorship, funded by the Federal Ministry of Research, Technology and Space and awarded by the Alexander von Humboldt Foundation, is designed to attract global research talent for high-impact, long-term academic endeavors in Germany. Valued at up to €5 million it is one of the most prestigious and generously endowed research awards in Germany. This distinction underscores not just ESMT’s research ambitions but also the growing significance of interdisciplinary approaches in management and economics. "Michael Weber is one of the most influential voices in household finance and macroeconomic expectations today," said Jörg Rocholl, president of ESMT, highlighting the boost Weber’s insights will bring to the school. Weber’s research links how inflation expectations affect consumer behavior, savings, and economic trust, and shows the value of transparent central bank communication. In his new role, Weber intends to set up the European Expectations Center at ESMT, a pioneering hub focused on understanding how inflation expectations evolve and impact decision-making among households and firms. The center will conduct comprehensive annual surveys, publish both academic and policy work, and host events for stakeholders across Europe. Weber is expected to begin his appointment in spring 2026, with recruitment for the new Center already underway. Image Credit: Chicago Booth University
Michael Weber, a globally recognized economist renowned for his work on household finance and macroeconomic expectations, has been awarded the eminent Alexander von Humboldt Professorship and is set to join ESMT Berlin. This marks a milestone for ESMT, as it becomes the first German business school to receive this prestigious research honor.
Laura Alfaro Named Chief Economist and Economic Counselor at Inter-American Development Bank
The Inter-American Development Bank (IDB) has announced the appointment of Laura Alfaro as its new Chief Economist and Economic Counselor, effective June 1, 2025. Alfaro is recognized for her deep expertise in international economics and public policy within the Latin America and Caribbean region. Prior to joining the IDB, Alfaro was the Warren Alpert Professor of Business Administration at Harvard Business School and served as Costa Rica's Minister of National Planning and Economic Policy. Her work has focused on international economics, capital flows, foreign direct investment, and trade. Alfaro has held influential editorial and research roles, including as Co-Editor of the Journal of International Economics and Vice-President of the Latin American and Caribbean Economic Association (LACEA). As Chief Economist, Alfaro will lead the IDB’s Research Department, reinforcing its role as a thought leader on issues such as productivity, competitiveness, private-sector-driven growth, technology, fiscal sustainability, financial inclusion, resilience, and inequality. Under the IDBImpact+ vision, her department will further integrate rigorous economic research into policy and operations to foster impactful solutions and guide decision-making across Latin America and the Caribbean. IDB President Ilan Goldfajn welcomed Alfaro, emphasizing the appointment comes at a critical moment as the bank strengthens its commitment to knowledge-driven development. Alfaro expressed her enthusiasm for the new role, stating, "Knowledge only makes sense when it becomes impact. Today, more than ever, our region needs bold ideas, rigorous analysis, and genuine collaboration to turn data into decisions that improve lives." She succeeds Eric Parrado, who now serves as IDB Invest’s Managing Director for Central America, Mexico, Panama, Dominican Republic, and Haiti. Image Credit: Inter-American Development Bank
Laura Alfaro, renowned Harvard Business School professor, has been appointed as the new Chief Economist and Economic Counselor for the Inter-American Development Bank, marking a significant milestone in economic leadership for Latin America and the Caribbean.
Sarah Smith and Brit Grosskopf to lead UK's Research Excellence Framework (REF) 2029 Economics & Econometrics Assessment
Appointments have been made for the leadership positions of the 34 expert sub-panels that will assess research in the Research Excellence Framework (REF) 2029. The selected chairs and deputy chairs will guide their units through the assessment process. The full panels, which should represent a diverse range of expertise in each field, will be announced in summer 2025. The REF is managed by Research England in collaboration with other UK higher education funding bodies to promote a world-class research environment and allocate research funding effectively. The REF aims to evaluate research excellence in UK higher education providers, influencing the allocation of approximately £2 billion annually for universities' research. Specifically, for Sub-panel 16: Economics and Econometrics, Sarah Smith a Professor of Economics at the University of Bristol has been appointed as the Chair, with Brit Grosskopf from the University of Exeter as the Deputy Chair. Both bring extensive experience and expertise to their roles. Sarah Smith, brings a wealth of experience and expertise to her role as the Chair of the economics and econometrics Sub-Panel. Sarah's career has been marked by significant contributions to the field of economics, having held positions at renowned institutions such as the Institute for Fiscal Studies (IFS), the Financial Services Authority (FSA), HM Treasury, and the London School of Economics (LSE). She is also a Research Associate at the IFS and a Research Fellow at the Centre for Economic Policy Research (CEPR). In addition to her academic achievements, Sarah is known for her commitment to promoting diversity and inclusivity in economics. She is the founder and co-chair of Discover Economics, a campaign aimed at increasing diversity among economics students. Sarah was awarded an OBE in the 2022 Queen's Birthday Honours for services to economics and education. Her impactful work extends to various roles on esteemed committees and advisory panels, reflecting her leadership and influence within the economics community. Brit Grosskopf, the newly appointed Deputy Chair of the Sub-panel, brings a unique blend of expertise in experimental economics and psychology to her role. Originally from Germany, Brit completed her PhD in Social Preferences and Learning in Experimental Games at the Universitat Pompeu Fabra, Barcelona. Her academic journey has taken her to esteemed institutions such as Harvard Business School and Texas A&M University before joining the University of Exeter. Brit's research interests lie at the intersection of economics and psychology, focusing on individual and group behavior, social preferences, reasoning, learning, reputation, identity, and happiness. Her innovative use of experimental methods has garnered research support from prestigious organizations such as the National Science Foundation, the British Academy, and the Russell Sage Foundation. Brit's leadership in experimental economics is highlighted by her role as the founder of the Birmingham Experimental Economics Laboratory (BEEL) at the University of Birmingham. Speaking of the appointments across all 34 fields, REF Director Rebecca Fairbairn said: “I’m delighted to welcome this outstanding group to lead the REF 2029 sub-panels. Their deep expertise and broad perspectives will be central to building an assessment process that is fair, rigorous, and trusted by the research community. We have been working in partnership with the sector throughout this process, and I’m grateful to everyone who expressed interest – your engagement is what strengthens the credibility and value of the REF across our research landscape.” Image Credits: University of Bristol / Behavioural and Experimental Economists (BEE) UK / REF 2029
Sarah Smith (Bristol) and Brit Grosskopf (Exeter) have been appointed as the Chair and Deputy Chair respectively to the Economics and Econometrics Sub-Panel for the UK's Research Excellence Framework (REF) 2029
Royal Economics Society announces Professor Imran Rasul as RES President for 2025/26
Together with the announcement of Professor Rasul as President, the RES simultaneously confirmed the appointment of Professor Tony Venables (Oxford) as President-Elect for 2025-2026, and Professor Diane Coyle (Cambridge) as President-Elect for 2026-2027, following the RES Annual General Meeting (AGM) last week, 21-23 May, where the appointments were formalised. Rasul, a professor at University College London, is known for his work on wealth concentration and economic inequality. He is Director of the Centre for the Microeconomic Analysis of Public Policy at the Institute for Fiscal Studies, and served as a Council Member and Trustee of the Royal Economic Society (RES) from 2018-2023 and Chaired the RES Publications Committee from 2018-21. Venables is a senior research fellow at Oxford, and has vast expertise in international trade and economic development. As well as professorships at Manchester, Southampton, LSE, and Oxford, he also served as chief economist in the UK Department for International Development. Both will now sit on the two governing bodies of the RES, the Trustee Board and the RES Council. Rasul takes over from Prof. Sir Christopher Pissarides (LSE), 2010 winner of the Nobel Prize in Economics, who remains on the RES Council in the role of Immediate Past-President. The AGM also confirmed six new Council members, who will serve from May 2025 to May 2030. Image Credit: Royal Economics Society
The Royal Economic Society (RES) has announced that Professor Imran Rasul (UCL) is confirmed as RES President for the upcoming year.
Urban, Rural and Transportation Economics (JEL R)
Econometrics, Statistics and Quantitative Methods (JEL C)
The purpose of a model is to (more) easily study real life Models in economics are imaginary constructs that approximate how the real-world economy functions, so that economists can predict how economic concepts and policies (would) work. Even though models are imaginary, they’re useful because each of them is composed of a set of rules and assumptions that attempt to reflect real-world behavior. Many of these rules and assumptions are defined by math symbols. Once a model is fully constructed, economists most often use math to determine what the model ends up saying, or predicting, about the real world. These conclusions inspire most of the discussion and debate about economic models. Economists will often debate if the assumptions make sense, if a given model is accurate, and whether or not the model can help us learn about real life. Because models are abstract, it’s very easy for economists to adjust them. This can be done by changing assumptions, or adding new ones. Often, new and useful models are built by adding onto older ones in this way. Entire schools of thought in economics are often defined by this very activity. For example, when Keynesians decried the unrealistic assumptions of classical economic models (particularly the idea that all markets will self-correct and reach a socially optimal equilibrium, rendering government intervention virtually useless), classicists adjusted their existing models to account for more realistic behavior. This led to the “Neoclassical” school of thought. It may seem like we’ve had plenty of time to build all of the economic models we need, but that’s far from the case. Theoretical economics papers are still routinely published, and economists are diving ever deeper into both theory and data to create models that can better approximate real life. For example, macroeconomists continue to build macroeconomic models that directly flow out of microeconomic behavior, and microeconomists continue to build increasingly complicated models using learnings from fields like behavioral economics. Models’ modular complexity makes them excellent for learning Economic models are also highly useful for another important area: teaching. Economics students are often introduced to models like the aforementioned Solow-Swan and OLG models early on in their economics coursework. But, since models can include varying levels of complexity, students often revisit earlier models with added assumptions and more complicated constructions. Revisiting models in this way allows a student to focus on the new complexities and implications, since they already understand how the model works generally. This makes models great tools for professors to use to demonstrate new theoretical concepts, and introduce more math and proofs to students. Here’s a fun exercise: if you’ve studied an economic model in an economics class, search RePEc or Google Scholar for economics papers that discuss that model. Open one, and read the author(s)’ discussion of the model. You may be shocked to find that the model looks far, far more complicated than you remember from class! Rather than confusing yourself, learning to interpret the more advanced versions of models (and compare them to what you already know) can give you a great glimpse into the frontiers of economic thought. And, you’ll find that many of the models’ assumptions remain either unchanged or are only lightly modified to allow for more realistic behavior. In fact, many economic models include some key assumptions that you should become familiar with. Let’s dive into the most common ones and discuss their usual implications. Common model assumptions to know Perfect Competition One common and important assumption that many models include is that markets are perfectly competitive. It’s important to master this introductory concept, because its implications are wide-ranging, and relaxing or changing this basic assumption often greatly changes model outcomes. For example, perfect competition implies: - Markets always clear. - Goods are homogenous. - Firms are “price takers”: they cannot set prices. - Firms make zero profits. - Firms utilize inputs to the point where their cost equals their marginal productivity; i.e., firms utilize labor to the point where marginal productivity of labor equals the wage rate. Simplified goods Very often when using a model, economists aren’t concerned with the exact goods that people buy. That’s because the specific products that people purchase usually don’t matter for the model’s outcomes. Instead, high-level concepts like overall income and utility – and how they relate to policies or macroeconomic phenomena like recessions — are more important. To see this, imagine that you’re studying a model where individuals spend all their income to maximize their utility (a very common analysis!). In this construct, what matters is the total amount of utility the individual can purchase with their limited resources (typically represented by their income). We usually don’t care which exact goods make up that utility, though — whether it’s two dozen eggs, a steak, or a restaurant meal doesn’t really matter, because it doesn’t change our economic takeaways (unless, of course, we are specifically studying people’s food preferences — but in that case, we’d probably need real data, not a theoretical model!). Because the specific mix of goods doesn’t normally matter, many models include some form of a simplified goods assumption. This means that we assume the economy produces only one or two goods, period. Further, this assumption usually states that these goods are homogenous (all the same), and fully sufficient for the economy and society to function normally. This assumption is useful mainly because it simplifies the math, and lets economists focus on the meaningful high-level takeaways. This is easy to see by considering a Lagrangian Optimization problem that an economic agent might face. Economists solve these types of problems for many models, to determine how individuals will behave in that model, which in turn determines overall economy-wide outcomes. Fundamentally, the budget constraint portion of these optimization problems must account for every price of every distinct item that the agent could purchase. In a model with one or two goods, the problem is easier and less unwieldy than if hundreds or thousands of goods were included. Moreover, abstracting away the myriad products available to us prevents nebulous concepts like preferences, brand loyalty, or cultural tastes from affecting the model’s outcomes. Rational agents The “rational economic man” is a straightforward fellow who lives in the world of economic theory. This rational agent is someone who always carefully considers all options they have, and chooses the optimal utility-maximizing decision every time. Rational agents therefore behave very predictably, and are quite helpful for economists attempting to describe how the world works. Assuming that all agents are rational (or at least that, on average, the typical agent is rational and thus economy-wide behavior will average out to rational behavior) allows economists to predict how — for example — certain fiscal policies might affect consumer behavior. This is also helpful partly because assuming that people aren’t rational can be more complicated than it’s worth. It’s true that in real life people can make mistakes, and sometimes make irrational decisions. But, this is incredibly difficult to model in a theoretical economy. How people make mistakes, and when people behave irrationally, are most likely quasi-random events and would be much more complicated to model than people who always choose the best decision. Further, from an economic theory standpoint, it’s usually not very helpful to allow for irrational behavior in models. When given a choice, almost every real person would prefer to make the best choice and avoid mistakes. If a bad decision ends up wasting money or time, that person’s utility suffers — but this doesn’t represent an interesting decision about allocating scarce resources. It was just a mistake that the person would, again, almost certainly choose to undo. Therefore, modeling mistakes or realistically irrational behavior likely wouldn’t change the model’s outcomes, and thus often isn’t necessary when constructing a model. Representative agents The term “representative agents” is often used when describing a model. In plain language, this assumption means that the model assumes everyone is the same. In combination with the rational agents assumption, most models therefore assume that every agent in the economy seeks to maximize their utility in a rational and identical way. Keep in mind that an “agent” in economics discussions can refer to individual consumers, producers, or households. Different models tend to focus on one or more of these entities and refer to them as agents. The representative agents assumption is clearly unrealistic, but removing it wouldn’t change much about most models’ takeaways – just like the simplified goods assumption. In this case, assuming that everyone is the same means that economists can study how just one individual would rationally behave in the model, and then simply extrapolate or multiply that behavior onto an economy-wide scale. If this seems ill-thought or lazy, consider that each representative agent can be thought of as the average of all other agents in the economy. This simply lets economists ignore the idiosyncrasies of every theoretical individual, and get to the pertinent takeaways. Model assumptions (and omissions!) determine specific use cases Many of the assumptions above seem very unrealistic or limiting. And, the justification for using them is often because they simplify the math and let economists get to a relevant takeaway without spending too long on minutiae. While this may seem frustrating or obtuse, this fact hints at a very important concept: models have specific use cases where they are relevant and useful. Outside of these relevant use cases, a specific model probably should not be considered — or at least its findings should be used very carefully, if at all, and with a good portion of context and caveat. In other words, specific models are made for a reason and used for specific purposes. If we know what those are, we can intelligently decide when and how to use the model, and when it’s best to set it aside. It’s easiest to illustrate this with an example. Suppose that an economist wants to examine how, in theory, changing a pension plan might affect economic outcomes. Pensions are awarded to older employees once they reach the age of retirement. First consider the Solow-Swan model, which features identical agents that live forever. In this model economy, each agent maximizes a utility function and chooses to purchase and consume a homogenous good; they also choose a portion of their income to save. This saving behavior could be useful when studying pensions, but agents that live forever don’t mesh very well with the idea of retirement: when would an immortal agent retire? That’s a strange — and not very useful — question to consider. Next, consider the OLG model. It goes against the grain of many simpler models by including two different types of representative agents rather than one. It also states that agents live for precisely two time periods, when they are “young” and when they are “old”. These are very simple changes, but they create many layers of added complexity. This allows us to view how those two types of agents interact with each other, how they behave differently from each other and from themselves across time, and how having a life cycle affects their behavior. Clearly, for the economist studying pension plans, the OLG model is the better choice. The specific assumptions it includes are far more helpful when discussing how pensions might affect economic behavior. In the OLG model, agents can work in the first period and retire in the second; but in the Solow-Swan model, they live forever and there’s no clear retirement age. This illustrates another important facet of economic models: the assumptions and rules that they don’t include can tell us what to use them for, and when to set them aside. It’s clear from this example that the Solow-Swan model isn’t the best choice when examining pensions. It doesn’t include any assumptions about age or retirement, which should tell us that it was not intended to examine these concepts. The OLG model is much better suited to these examples, because it includes additional assumptions about aging over time. That’s not to say the Solow-Swan model isn’t useful. It’s a very popular model for studying economic growth and savings more generally than the OLG model, because it doesn’t include additional complexity in the behavior of specific agents. This makes it a better choice for economists studying how fiscal policy might impact long-run economic growth, for instance, where the decision of when an individual should retire or how they might react to pension plans isn’t especially relevant. Criticizing and debating models — the right way In this way, each model tends to serve a set of general purposes, but they may not be very helpful when applied for study outside of those purposes. Economists understand this; many would quickly agree that a certain model does not realistically portray all of human activity. But, the vast majority of models don’t have to. They only need to realistically portray outcomes related to the specific use case they’re intended to help us study. And, the modular nature of models means that economists can — and very often do — repurpose existing models to study their specific research question. Many economics papers include a section that identifies the basic model the authors intend to use, then introduces additional assumptions based on their research question. Once a model has been defined, it’s very worthwhile to debate whether or not it makes sense for the task at hand, and if it models economic activity realistically enough to be worth using. Debates over model shortcomings are most productive when we consider what they’re used for. But, beware of discussions about how unrealistic a model is when that discussion doesn’t acknowledge the intended use case. And keep in mind that even glaringly unrealistic assumptions – such as the Solow-Swan model’s infinitely-lived agents — don’t disqualify a model from use. They simply point to the proper use cases. One last note: models in econometrics The word “model” takes on a slightly different meaning in econometrics contexts. While the best econometric models are informed by economic theory, in regression analysis the word “model” often refers to the specific form of a regression model used. There are many, many different types of regression models – gravity models, probit and logit models, Poisson models, ARIMA models, the famous OLS model…the list continues. These models all include and imply a set of assumptions and rules, just like more general theoretical ones do. But, in these cases, the assumptions and rules are more immediately math- and statistics-minded. These models very frequently take a step beyond the theoretical world and utilize real-world data to take a specific form, then help the economist study whether or not an economic theory is supported by the real-world evidence. Still, there are parallels between these two types of models. It’s important to learn about the assumptions of each type of regression model to learn when they can be used, and when their assumptions are too unrealistic for the task at hand – just like theoretical models. This requires a thorough understanding of econometrics, which can be a harrowing — but rewarding — journey! In summary: models are abstract constructs that economists love to use. They’re helpful tools with proper use cases, but it’s important to consider what a model’s assumptions imply. And, each model has limitations that imply times when they should probably be disregarded. Interested in learning more economic models? Check out our Economics Terms A-Z, or take the plunge and look for a course of study yourself! Image Credit: Andrey_Popov on Shutterstock (licensed image, copyright)
The word "model" is used a lot in discussions about economics. However, economics courses often don’t spend a lot of time defining the word or what exactly it means. Rather, students usually end up piecing together their idea of what models are after learning several specific examples (such as the Solow-Swan or OLG models). This article fills in the gap by discussing the fundamentals of models and how they’re used in economics. There are many similarities between the myriad models utilized in the field, including common use cases and common assumptions. Understanding these commonalities will help you use and interpret economic models effectively, avoid misconceptions, and identify when these models are not necessarily relevant or useful.
Biswo Nath Poudel appointed as Nepalese central bank governor
The 49-year-old Poudel, a former economic adviser at the International Labour Organization (ILO), replaces Maha Prasad Adhikari, who completed his five-year term on April 7. The position of the central bank chief had been vacant for over 40 days due to disagreements among allies of Prime Minister K.P. Sharma Oli's ruling coalition regarding the candidate selection process. Poudel's appointment is seen as a resolution to the impasse, as he is considered to have close ties to the centrist Nepali Congress party, a key member of the ruling coalition. Reuters reports that Poudel's immediate challenges include addressing the health of the banking sector, which analysts note has been significantly impacted, requiring swift correction to improve the quality of banking assets. There are also concerns regarding the misuse of loans by borrowers, prompting a need for enhanced supervision of commercial banks. Additionally, Poudel faces the task of steering Nepal out of the "grey list" of the Financial Action Task Force (FATF), a global anti-money laundering watchdog. This challenge emphasizes the importance of implementing measures to combat money laundering effectively under his leadership. Poudel received his PhD in Agricultural and Resource Economics from the University of California, Berkeley, has held several government posts in Nepal, and is a professor at Kathmandu University. Photo Credit: Nepal Rastra Bank
Economist Biswo Nath Poudel has been appointed as the new governor of Nepal Rastra Bank (NRB), the central bank of Nepal, ending a prolonged discord within the ruling coalition of Nepal.
Many economic models, particularly those taught in introductory courses, include a “representative agent” assumption. This means we assume that economic agents (or households) across the economy are all the same. This greatly simplifies the math and allows us to reach, and discuss, the implications of each model without getting lost in pages of arcane symbols. However, this is the key assumption that the OLG model does away with. Instead, in the OLG model, there are two different kinds of agents, usually called “young” and “old”. This has far-reaching implications for economic outcomes, as we will soon see. Introducing the basic OLG model One of the model’s main focuses is studying how heterogeneous agents affect economic outcomes, particularly with regard to phenomena such as social security systems and public debt accumulation. To accomplish this, the OLG model makes a simple but elegant assumption. This simple assumption is: in each time period, there is a young generation and an old generation. The young generation works and earns income, and chooses to maximize their utility while saving some money for retirement. The old generation does not work and has no income. Instead, they consume based on the savings they set aside in the prior time period (when they were young workers). As a note, the OLG model is measured in “discrete” time. This means that there is not a continuous flow of time: rather, each sequential point in time is distinct from the rest. For example, in discrete time 1976 and 1977 could both be time periods, but “halfway through 1976” would not make sense. We represent each point of discrete time by t. In each time period, new young agents appear – they either immigrate or are born – and young agents from the previous period become old. Agents live for two periods, such that each is young in one period and old in the next. We further assume that the population grows larger each period. Population growth is therefore modeled by: Lt+1 = (1+n)Lt, where n is the rate of population growth and Lt is the size of the young generation. Notice that in each time period, the old generation can be represented by Lt-1, since the previous period’s young generation becomes the current period’s old generation (similarly, Lt+1 represents the next period’s young generation). We assume that each young agent supplies 1 unit of labor, and each old agent supplies 0 units of labor. Because of this, old agents don’t appear directly in the production function! Output and the production function are modeled by Yt = F(Kt,AtLt), where Yt represents economic output (and therefore also income) in each time period, and the term F(Kt,AtLt) shows that we have an unknown production function F containing three important variables: Kt, At, and Lt. Kt is capital in each period. At represents the level of technology while Lt was already defined as the amount of young agents in each period. Since we assumed that young agents supply 1 unit of labor and old agents supply 0, Lt also represents the labor force. AtLt is therefore the productivity of labor, which can be increased by adding workers or increasing the level of technology. A few more assumptions must be made to complete the outline of the model. Economic output is homogenous: all goods are the same. Further, this single good can be used for both production and consumption. Markets are perfectly competitive, which lets us normalize prices to 1 and ignore the effects of money. There is no foreign trade: this economy is in autarky. There are constant returns to scale in production. Economic agents are rational and have perfect information. There’s technically one more important assumption we need in order to set up the model. Suppose that agents choose to take out a loan to finance all of their consumption in the first period of life, and take out more loans in the second period to cover the interest they must pay back. In the OLG model, this could create an infinite cycle of debt being used to finance everything, which is nonsensical. We formally assume that this does not happen, so that the model can work properly without yielding this unrealistic solution. This is known as the “no Ponzi game solution” assumption. Analyzing firm behavior As with the Solow-Swan model, markets are assumed to be perfectly competitive. This means that firms make zero profits in equilibrium, and prices can be normalized to 1 and largely ignored. In the basic OLG model, firms solve the following optimization problem: Π = Yt – wtLt – rtKt where Π, the Greek capital letter pi, is the symbol typically used to represent profit in economics. This is the firm’s profit equation: income Yt minus the total cost of paying labor wtLt minus the total cost of renting capital rtKt. Income is determined by the production function we choose. Let’s stick with the general form F(Kt,AtLt) as most economics courses do. This transforms the profit equation into: Π = F(Kt,AtLt) – wtLt – rtKt We could account for depreciation 𝛿 by subtracting the term 𝛿Kt from the above as well. Either way, the first-order conditions for this profit equation reveal the firm’s solution. Taking the partial derivative with respect to labor Lt and capital Kt yield the following familiar conditions: 𝝏Π/𝝏Lt = wt = marginal product of labor (MPL) 𝝏Π/𝝏Kt = rt = marginal product of capital (MPK); with depreciation included, this becomes rt – 𝛿 These results show clearly that firms make zero profits in this perfectly competitive equilibrium. Knowing how firms behave allows us to get into the more interesting and unique parts of the OLG model: household behavior, and later, government policy. Setting up the household optimization problem As usual, in the OLG model households are composed of rational economic agents that maximize their utility subject to a budget constraint. Unlike usual, recall that we’re assuming that there are two types of agents – young and old. Typically in the OLG model, it’s assumed that households own capital and rent it to firms. While this may seem unrealistic, the model’s outcome is the same when we assume that firms own capital, but must pay their shareholders (who are households). Thus, it’s simpler to stick to the former assumption rather than the latter. The young generation earns income wt, and saves a portion of it for time t+1 when they will be old. They seek to maximize utility in both periods subject to their budget constraint of lifetime earnings, as follows: maximize U(cY,cO) subject to two budget constraints: wt = cY + st cO = (1 + rt)st where U(cY,cO) represents a utility function U with two major variables, consumption when young (cY) and consumption when old (co). The budget constraints show two important things. First, income wt can be used for either consumption in the first period cY or savings st, which becomes income for the second period. Next, consumption in the second period cO equals the rate of return on savings from the first period. We can use this first budget constraint to reach the following Lagrangian optimization* problem: maxc U(cY,cO) – λ(wt – (cY + st)) *A note for advanced students: the Lagrangian problem here often becomes a “Hamiltonian” in advanced economics classes. This is a similar technique that’s better suited to analyzing behavior over time. But, this equation is incomplete – and not just because we haven’t used budget constraint number two yet. Consider that young people making savings decisions don’t necessarily value consumption in each period equally. Someone who is very impatient would likely consume more in the first period, and have less left over in the second. Meanwhile, a very patient person would likely sacrifice some consumption in the present to save more for the future. To account for this behavior, we need to introduce a new parameter 𝜌 to represent time preferences. 𝜌 is often described in economics courses as “(im)patience” (some courses may use 𝛽 instead). With 𝜌, we can split U(cY,cO) into two components: U(cY,cO) = u(cY) + 𝜌u(cO). This shows that a young person making budgeting decisions must choose between utility now and utility later (which is modified by their (im)patience). One of the interesting conclusions of the OLG model is the following: 𝜌 can cause the economy to reach Pareto inefficient equilibria! This is called “dynamic inefficiency”. In short, when people’s preferred rate of savings is different from the socially optimal level of savings, the economy may grow in a way that is Pareto inefficient. This means there is a Pareto improvement available to reach a strictly better equilibrium. We’ll see later how fiscal policy can (theoretically) help prevent dynamic inefficiency. First, we must account for these time preferences in the utility maximization problem. The household optimization problem becomes: maxc u(cY) + 𝜌u(cO) – λ(wt – (cY + st)) st, savings, is another parameter that needs to be replaced. We can use budget constraint 2 to solve it in terms of consumption: cO = (1 + rt)st → st = cO / (1+rt) Now, let’s replace the savings parameter and view our OLG model equation in all its glory: maxc Lagrangian ( L) = u(cY) + 𝜌u(cO) – λ(wt – (cY + [cO / (1+rt)])) Solving the household problem in the OLG model Taking the partial derivatives vwith respect to cY, cO, and λ yields: maxc L = u(cY) + 𝜌u(cO) – λ(wt – (cY + [cO / (1+rt)])) 𝝏L/𝝏cY = u’(cY) + λ 𝝏L/𝝏cO = 𝜌u’(cO) + (λ / (1+rt)) 𝝏L/𝝏λ = wt – (cY + [cO / (1+rt)]) Setting these three first-order conditions equal to zero and solving yields: u’(cY) = λ u’(cO) = (λ / [𝜌(1+rt)]) wt = cY + (cO / (1+rt)) Insert 1 into 2 to solve: u’(cO) = u’(cY) / (𝜌(1+rt)). Now, divide both sides by u’(cO) and multiply by 𝜌(1+rt) to reach: u’(cY) / u’(cO) = 𝜌(1+rt). This result shows that every economic agent chooses a mix of consumption and savings so that their personal impatience-modified interest rate equals the ratio of how much they enjoy “young-period” consumption compared to “old-period” consumption. Examining savings decisions by (im)patient agents 𝜌’s relation to (1+rt) determines if dynamic inefficiency will occur! Recall that dynamic inefficiency is a state where the economy is in equilibrium, but could make a Pareto improvement to reach a strictly better equilibrium. Obviously, we want to be at the best equilibrium possible. If 𝜌 = (1+rt) for all agents, the economy will reach a dynamically efficient equilibrium. This is the case where each agents’ rate of patience is perfectly in line with the economy’s interest rate. But agents can have their own preferences that might push the economy’s savings too far in one direction. If 𝜌 < (1+rt), the agent is too impatient and saves too little. This causes their consumption in the second period of their life to suffer. On an economy-wide scale, too many impatient agents means that equilibrium could be improved by encouraging more saving by younger agents, which would allow the economy to grow more, leading to more consumption for everyone in the long run. Conversely, if 𝜌 > (1+rt), the agent is too patient and saves too much, such that their first period utility could be made greater by sacrificing a smaller amount of utility from the next period. If there are too many overly patient people in the economy, the economy has an extra-high savings rate that depresses current consumption and needlessly reduces overall utility (for example, due to diminishing returns: after a certain point, increasing savings/investment only increases growth by less than that increase in savings). This can be the case during a recession, for example, where there’s too little consumption or aggregate demand to help the economy recover. At this point, let’s choose a functional form for utility, so that we can further simplify u’(cY) / u’(cO) = 𝜌(1+rt). This will help us find the optimal consumption mix, the optimal savings rate, and then later the steady-state equilibrium. Let’s choose the straightforward utility function U = ln(cY) + 𝜌ln(cO): this shows that utility is a positive but marginally diminishing function of each period’s consumption, where the “old” period’s consumption is modified by the individual’s (im)patience. In this case, u’(cY) = 1/cY and u’(cO) = 1/cO. So, u’(cY) / u’(cO) = 𝜌(1+rt) simplifies to: cO / cY = 𝜌(1+rt) → cO = cY*𝜌(1+rt) This is the optimal consumption mix: the old period’s consumption is equal to the young period’s consumption reduced by impatience 𝜌 (since 𝜌 is less than 1) and increased by the return to savings (1+rt). We can use this to find the optimal savings rate. To do this, we insert this relation into the third first-order condition above that represents the individuals’ lifetime budget constraint. Recall that this condition was 𝝏L/𝝏λ = wt = cY + (cO / (1+rt)). Inserting the relation cO = cY*𝜌(1+rt) yields: wt = cY + (cY*𝜌(1+rt) / (1+rt)) → wt = cY + cY*𝜌 → wt = (1 + 𝜌)cY → cY = wt / (1 + 𝜌) Almost there. This is the optimal first-period consumption in terms of lifetime income and (im)patience. We know a relationship between income wt and savings: wt = st + cY. That’s because income in the first period is either consumed cY or saved for the “old” period st. Rearranging, cY = wt – st. Combine this relation with the optimal first-period consumption to finally arrive at: cY =wt / (1 + 𝜌) → wt – st = wt / (1 + 𝜌) → st = wt – wt / (1 + 𝜌) → st = wt[1 – (1 / (1 + 𝜌))]. We’re technically done, but this expression is ugly, so let’s simplify it. The expression 1 – (1 / (1 + 𝜌)) equals (1 + 𝜌)/(1 + 𝜌) – 1/(1 + 𝜌), which equals ((1 + 𝜌 – 1)/(1 + 𝜌) = 𝜌/(1 + 𝜌). This yields, at long last, a more digestible version of the optimal savings rate equation: st = (wt*𝜌) / (1 + 𝜌) To conclude this section, let’s consider a fun fact. Since the OLG model can analytically determine the rate of saving that rational economic agents will choose (as we just did!), the savings rate is endogenous in this model. That’s a major difference between this model and the Solow-Swan model, where the savings rate is taken as given. Finding the steady-state equilibrium As with the Solow-Swan model, the OLG model doesn’t focus on one particular time period, and therefore equilibrium isn’t defined by one static production mix. Rather, we can find an equilibrium growth path in the OLG economy, the “steady state”. We can also find out what the best steady-state equilibrium is, where the economy is dynamically efficient. The level of output and therefore income in the economy is defined by the amount of goods produced, which in this case is only capital K. Again as with the Solow-Swan model, economics courses are typically concerned with the per capita amounts of income and capital in the steady state. That’s because economy-wide measurements can be consistently growing along the optimal growth path, but those numbers don’t necessarily tell us anything about the standards of living (and therefore utility) unless we account for population. The next period’s capital Kt+1 is defined as the amount of capital that we have today, minus capital that depreciates, plus new capital that is made. In math terms, this is: Kt+1 = stLt + (1 – 𝛿)Kt where st is the savings rate, Lt is the number of agents in the young generation, 𝛿 is depreciation, and Kt is the current period’s capital. Suppose the population grows at rate n. This means, next period, the size of the young generation is Lt+1 = (1+n)Lt. Recall that the young generation is also the labor force. Setting the ratio of capital in the next period to the labor force in the next period, Kt+1 / Lt+1, allows us to find the optimal growth path in per capita terms. To explain how, consider the following. Only one good, K, is produced in this economy. So, Kt+1 represents total output in the next period – which is also income. Lt+1 is the total population next period. So, the ratio Kt+1 / Lt+1 shows per capita levels of output. If we maximize this ratio for all future periods, we’ll have found the highest per capita level of output across all periods. Let’s get started. Divide the entire equation for Kt+1 by Lt+1, and recognize that Lt+1 = (1+n)Lt and thus Lt / Lt+1 = 1/(1+n), to find: [Kt+1 = stLt + (1 – 𝛿)Kt] / Lt = Kt+1 / Lt+1 = (stLt / Lt+1) + [(1 – 𝛿)Kt / Lt+1] = Kt+1 / Lt+1 = st / (1 + n) + [(1 – 𝛿)/(1 + n)]*(Kt / Lt) The expression Kt / Lt is often expressed by economists as kt. Further, we already know that the optimal savings rate is st = wt𝜌 / (1 + 𝜌). Using these two facts, the expression above becomes: kt+1 = (wt𝜌 / (1 + 𝜌))*(1 / (1 + n)) + [(1 – 𝛿)/(1 + n)]*kt In the steady state, the amount of per capita capital will be unchanging, by definition. This means kt+1 and kt will be the same in the steady state, so we can replace them with a symbol for the optimal amount of capital per capita, k*. We can then combine those k terms and solve. Doing the algebra for this will ultimately yield: k* = (1/(𝛿 + n)) * (𝜌 / (1 + 𝜌)) * wt Note that this equation describes the growth of capital over time in this economy. It is the OLG model’s law of motion. Finally, we know that wt equals the marginal product of labor (from the firms’ optimization problem!). That means we can discuss this finding in words: the optimal per capita amount of capital in the steady state (after accounting for the optimal savings rate) is equal to the marginal product of labor modified by agents’ (im)patience while accounting for depreciation and population growth. This equation also shows how 𝜌 affects the steady-state level of capital k*. There are many possible k*, but only one of them is the best. The OLG model and its steady state can be depicted as in Figure 1. Figure 1: The basic OLG model Dynamic inefficiency and fiscal policy From our earlier discussion about savings, recall that: If 𝜌 = (1+rt) for all agents, the economy will reach a dynamically efficient equilibrium. If 𝜌 < (1+rt), agents are too impatient and save too little. This means that equilibrium could be improved by encouraging more saving by younger agents, which would allow the economy to grow more, leading to more consumption for everyone in the long run. If 𝜌 > (1+rt), the agents are too patient and save too much, depressing current consumption and needlessly reducing overall utility. When the economy is in a dynamically inefficient equilibrium, the government can use fiscal policy to take action and nudge it into a better growth path where future equilibria result in a higher level of utility. In other words, 𝜌 is a parameter that the government can influence, by making savings more or less attractive – and this in turn affects k*. In the case where agents are too impatient (𝜌 is too low), k* is too low because there’s not enough savings to grow the economy as much as it could be growing. Therefore, effective fiscal policies could raise the interest rate and encourage more savings to increase k* and reach a strictly better equilibrium. This would be an example of expansionary fiscal policy. Conversely, if agents are too patient (𝜌 is too high), the economy suffers because there’s too much saving and not enough consumption. Because of diminishing returns, at a certain point each dollar of savings is fueling less future output than the consumption that the money could have been used for instead. In this case, fiscal policies that lower the interest rate may prove useful, i.e. to disincentivize savings. This would be an example of contractionary fiscal policy. Clearly, fiscal policies can change the incentives around saving, which is one lever by which fiscal policy affects the economy. Other means by which fiscal policies can affect the economy include through taxes, redistribution effects, changing labor participation rates, and more. These other levers will impact k* by influencing the levels of aggregate supply and demand, changing how agents and firms behave, and more. See the linked article on fiscal policy for a more complete discussion of these topics. One of the most common use cases for the OLG model is examining how social security plans work. The model is often used to predict how policy changes in this area will affect the economy. Let’s turn to this as a further example of how fiscal policy can affect the economy in the OLG model. Social security in OLG To see how OLG might be used to examine social security specifically, let’s make some extreme assumptions. Suppose depreciation 𝛿 = 1, such that in every period all new capital must be created. In our discussion so far, we haven’t defined what agents’ savings actually are. In the standard OLG model, savings allow young agents to save some of their capital for the period when they’re old. Then, in their old period, they supply no labor but instead rent this capital out to firms. Therefore, the return to savings rt is the same as the rental rate of capital rt. Eagle-eyed readers may have noticed this already, since it was always the case in our prior derivations. This means that, when 𝛿 = 1, the return to savings is zero because no capital can be saved for a later period. This in turn means that there are no savings in the economy at all. Therefore, the old generation has no capital to rent out, thus have no income at all, and starve to death. The economy only grows via population growth and each young generation’s labor. Obviously, this is rather horrific. But there’s good news: utility could be improved in this extreme scenario by imposing a social security system, specifically by taxing the young to support the old. Recall that (again using our logarithmic utility function) utility is defined by U = ln(cY) + 𝜌ln(cO), and that the optimal consumption mix we found was cO = cY*𝜌(1+rt). We can see that consumption in the second period would increase the agent’s utility, though at some rate affected by their level of impatience 𝜌. The social security system would prevent agents from starving in the second period with a small sacrifice to their consumption in the first period. Due to the logarithmic utility function (which guarantees diminishing marginal returns to the utility provided by consumption), under this system of taxation and redistribution, agents would gain more utility in the second period than they lose in the first. The only case where this would be untrue is the case where an agent is totally and completely impatient such that 𝜌 = 0. Another way to see this clearly is that, due to population growth, everyone can get back more than they put into the system. Recall that Lt+1 = (1 + n)Lt. Since the economy grows at rate n, there are n more individuals in each successive generation that must give some income to only Lt-1 = (1/(1 + n))Lt individuals (n is positive, which means (1/(1 + n)) is less than 1). In other words: since each successive generation is larger, the amount of money taken from each young agent is less than the amount of money that each old agent receives. Thus, each agent receives a greater social security payment in their second period than they paid in their first period. However, if we remove the assumption that the population is growing, it may be that Lt-1 is actually larger than (1/(1 + n))Lt, meaning agents put in more money than the generation before them had to! This is a problem in many advanced economies today, where population growth has not been sufficient to outpace prior generations. The OLG model could be used to help these countries understand the amount of financial burden that may be placed on the younger generation, as well as perhaps the effects of other fiscal policies on the pension system with a declining population. Further Reading The US Congressional Budget Office (CBO) uses the OLG model to help determine the future effects of fiscal policy choices. Although it mostly refers to the specific model as a “life-cycle growth model”, on slide 1 of the CBO’s “An Overview of CBO’s Life-Cycle Growth Model”1, it states clearly that “The life-cycle growth model (also called an overlapping-generations, or OLG, model) is one model that CBO uses to estimate the long-term effects of changes in fiscal policy.” Although their version of the model is more complicated than the one we’ve examined in this article, it’s nevertheless built on the same foundation. It’s both instructive and very interesting to read the details of the model that they’ve built, and how the model solves for the predicted state of the economy. You can check out the specifics of their OLG model by reading the CBO’s document yourself!
The Overlapping Generations model, often called the “OLG model”, is a cornerstone macroeconomics model that does away with one nearly universal assumption. Similarly to the Solow-Swan model, it’s often used to describe the overall economy, and can be used to find an optimal growth path for an economy.
Students Take Centre Stage at 2025 Irish Young Economist of the Year National Awards
More than 300 second-level students aged 12-18 from various schools in Ireland participated in the event, showcasing their curiosity and critical thinking skills in economics. The event, which took place on 8th May and is now in its twelfth year, aims to promote an understanding and enjoyment of economics among young people. This year's entries covered a wide array of topics such as climate change, inflation, AI, housing, global trade, sport, gender equality, and more, demonstrating the relevance of economics in analyzing modern societal complexities. Seamus Coffey, of the Irish Economic Association, introduces the YEOTY Awards 2025 The national award was presented by Seamus Coffey, President of the Irish Economic Association, to Mir Hasibullah Zia and Daniel Dillon, from Wexford CBS, for their project titled "The Dependency Trap: How Ireland's Reliance on Multinationals Deepens Economic Imbalances", which focused on the impact of Foreign Direct Investment (FDI) in Ireland. Their project stood out for its clear presentation, in-depth analysis, and incorporation of the UN Sustainable Development Goals (SDGs). YEOTY National Award Winners (Senior Category) Daniel Dillon (l) and Mir Hasibullah Zia (r) / Mir Hasibullah Zia (l) receiving the award from Seamus Coffey (r) The overall winner in the junior category was Iris Xinhe Li, from Rathdown School, for her project "Earth or Space: Which Economy will Launch us into the Future?". Additional prizes were awarded depending on age, county and topic area. The Central Bank of Ireland Award, for projects with a focus on the Irish economy and monetary policy was awarded to Swasti Sahoo, from Adamstown Community College for her project titled "The Paradox of Green Growth Can Capitalism Survive Without Infinite Resource Exploitation". The entries were reviewed by a judging panel made up of Central Bank economists. Jack Chambers, Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, commended the students on their projects during a remote address, acknowledging their critical thinking and contribution to policy discussions. Jack Chambers, Irish Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation addresses the YEOTY Awards 2025 Dr. Rachel Farrell, Chair of YEOTY, highlighted the exceptional standard of entries this year and praised the program for empowering students to explore important societal issues through evidence-based economic thinking. YEOTY is supported by various national partners, including universities, associations and government departments. The program plays a crucial role in enhancing data literacy and economic awareness among young people. With participation from schools across Ireland, this year's awards underscore the growing strength of economics education in the country. Congratulations were extended to all participants, recognizing the bright future of economics in Ireland lies in the hands of the talented and passionate students who took part in the event. Image Credits: Paul Moore Photography / YEOTY
Students took the spotlight at the 2025 Young Economist of the Year (YEOTY) National Awards, held at the Knocknarea Arena, Atlantic Technological University (ATU) in Sligo.
How to be an Effective Peer Reviewer in Economics
Initial considerations before accepting a peer-review assignment Before accepting a peer-review assignment, consider whether you are a good match to review the submitted manuscript. Do you know the journal and the kinds of articles it usually publishes? Are you familiar with the literature and methods of the paper? Can you complete the review by the assigned deadline, or do you need to request additional time? It's also essential to disclose any potential conflicts of interest, such as personal or professional relationships with the author, that could impact your objectivity. If you must decline the invitation, it is always helpful to suggest colleagues who would be a better fit. Evaluating the paper: Key aspects Your job as a reviewer is to provide a clear and decisive recommendation to the editor. To do this, start by evaluating whether the paper aligns with the journal’s aims and scope. Assess the paper’s contribution and whether it is sufficiently important to merit publication in that particular outlet. Since journal standards vary widely, it’s essential to understand the guidelines of the one you're reviewing for. Next, examine the content of the paper itself. Does it have a clear conceptual framework and development of hypotheses? Gauge whether the data is described in enough depth and if the empirical specification is appropriate, current, and well-grounded in prior literature. Are there additional robustness checks that should be done to make the analysis more convincing? You should also determine whether the writing requires substantive revision to improve clarity and coherence. Editors often suggest professional proofreaders to help refine language and style, and you may want to suggest that option too. Be specific Recommending a “revise and resubmit” implicitly conveys to the editor that the paper makes a meaningful contribution, but it is not publishable in its current form. However, with successful revisions, it may be acceptable for publication. In this regard, your comments should provide the authors with a well-defined path for meeting that standard. If you suspect the paper's results are incorrect, then you should provide specific, objective reasons for your concerns instead of communicating general skepticism. Vague comments are less helpful for the author and will leave them guessing on how to address your feedback. For example, instead of simply noting that the paper has a problem with censored data, it would be more constructive to suggest trying a Tobit model. For more complex issues, offering additional references or methods can help guide the author towards a solution. Focus on the main goal: Improve the paper Your criticisms should always be constructive, even when recommending rejection. In such cases, it is a good idea to highlight one or two strengths of the manuscript and offer a few sincere suggestions for how the authors can overcome the paper’s shortcomings. It is not your job as a reviewer to tear the paper apart or impress the editor with your own knowledge. Your goal is to put forth a genuine effort to help the authors improve their paper. Think carefully about whether your comments will strengthen the analysis, or merely “make work” for the authors. Recognize and avoid bias In economics, double-blind peer review is common, but it is often easy for reviewers to identify authors by searching for an unpublished draft online. You should avoid doing this, as knowledge of the authors' identities, particularly their institutional affiliation, seniority, or nationality, can introduce implicit bias into your evaluation. Research suggests that female authors are held to a higher standard, and that papers written by women may undergo a longer review process (Lundberg and Stearns, 2019). In the event that you have an idea about who the author might be, being conscious of such potential biases can help ensure a fair process for all. Be the reviewer you wish to encounter Being kind and professional are essential aspects of the review process. Research in economics requires a significant amount of time and effort, with some working many years on a single paper. Being unnecessarily harsh serves no greater purpose but many people behave this way because it reflects their own experiences as an author. Remember that all papers have weaknesses and limitations, but your role as a reviewer is to help the authors strengthen their work and, in doing so, contribute to the advancement of knowledge in the field. References Lundberg, S., & Stearns, J. (2019). Women in economics: Stalled progress. Journal of Economic Perspectives, 33(1), 3-22. Image Credits: Wendolin Jacober / Pexels / Getty Images
Publishing journal articles in economics can be slow and challenging, and effective peer review plays a critical role in shaping the efficiency and fairness of the process. Despite its importance, many researchers receive little guidance on how to be a constructive peer reviewer. In this article, I provide advice on how to approach peer review thoughtfully and professionally, with the goal of improving the experience for both authors and reviewers.
Antonin Bergeaud awarded 2025 Best Young (French) Economist Prize
The Best Young Economist Prize is awarded each year by Le Cercle des économistes, a French economics think tank, in association with Le Monde, a major French newspaper, to a French economist under the age of 41 who combines recognized expertise and active participation in public debate. As economies face increasingly profound shocks - climate, technological, geopolitical, demographic - a new generation of economists is delving into understanding them better. In the 26th edition of the Prize, the jury recognised Antonin Bergeaud, a 35-year-old associate professor in the economics department at HEC Paris, as exemplary of this movement. A specialist in long-term growth and innovation economics, Bergeaud explores a crucial question in his research: under what conditions can innovation still foster shared, sustainable, and equitable growth? In his academic work and in his essay "The Bright Future of Growth" (co-authored with Gilbert Cette and Rémy Lecat), Antonin Bergeaud investigates the drivers of growth since the 20th century to shed light on current obstacles. His approach combines analyzing productivity differences between companies, studying technological diffusion, and the rise of artificial intelligence as a transformative - even disruptive - factor in the labor market. With the promise of a "post-world" order based on digital technologies yet to translate into productivity figures, Bergeaud's research questions a well-known paradox among economists: how can we explain the fact that we are surrounded by innovation - but less and less productive? Moreover, how to combat the slowdown of growth without widening inequalities? These questions will resonate with the theme of the 2025 Aix-en-Provence Economic Meetings, titled "Facing the Shock of Realities", where Antonin Bergeaud will lead a session. The three economists nominated alongside Antonin Bergeaud also reflect the desire to rethink economics in light of contemporary disruptions. Adrien Bilal, a professor at Stanford, stands out as one of the most innovative researchers on the macroeconomic impacts of climate change. Lauriane Mouysset, a researcher at CNRS, intertwines economics, ecology, and philosophy to build a biodiversity economy that rejects reducing nature to monetary value. Mathieu Parenti, a professor at the Paris School of Economics, develops valuable expertise on environmental and fiscal externalities in open economies. As instability becomes the norm and shocks multiply, economic research has never been more crucial to give meaning, direction, and method to collective action. By highlighting these directions of study, the 2025 Best Young Economist Prize outlines a concrete vision for the field of economics, rooted in the world's changes and intent on informing public decisions. Image Credit: Olivier Vigerie / Les Cercle des économistes
Antonin Bergeaud has been awarded the 2025 Best Young Economist Prize for his research focusing on major economic, technological, and ecological disruptions.
Global Economy Prize 2025 Winners Announced
The prestigious award, which aims to inspire solutions to global economic challenges, will be presented in the categories of politics, business, and economics. This year's honorees under the theme 'Courage for Change' include Gabrielius Landsbergis for politics, Hélène Huby for business, and Prof. Dr. Monika Schnitzer for economics. In the politics category, Gabrielius Landsbergis, the Former Minister of Foreign Affairs of Lithuania, is lauded for his far-sighted foreign policy strategies, particularly regarding Russia's invasion of Ukraine. Landsbergis' proactive approach and insightful analysis have helped position Lithuania as a respected voice within NATO. Hélène Huby, Co-Founder and CEO of The Exploration Company in Munich, has been recognized in the business category for her expertise in the aviation industry and her entrepreneurial spirit in democratizing space exploration through European solutions. Huby's pioneering efforts in developing sustainable and affordable transportation to space stations and the moon have set her apart as a leader in the European space industry. Professor Dr. Monika Schnitzer, Chairwoman of the German Council of Economic Experts and a Professor at LMU Munich, has been honored in the economics category for her groundbreaking work in empirical microeconomics. Schnitzer's innovative research methods and ability to translate complex economic concepts into practical policy recommendations have earned her acclaim as an exceptional policy advisor. Her talent for communicating economic theories in an accessible manner has also made her a highly regarded educator among students. The winners will be presented with the Global Economy Prize at an award ceremony during Kiel Week on June 23, 2025, in Kiel. The selection process for the award involved proposals from the IfW Kiel network, with final nominees chosen by a jury comprising prominent figures from the Kiel Institute for the World Economy, the City of Kiel, and the Schleswig-Holstein Chamber of Industry and Commerce. Through their outstanding contributions to their respective fields, Landsbergis, Huby, and Schnitzer have demonstrated exemplary leadership in their fields, and a commitment to fostering positive change in a global economic landscape. Image Credits: IFW Kiel / IFW Kiel
The 2025 winners of the Global Economy Prize have been announced by the Kiel Institute for the World Economy, in collaboration with the City of Kiel and the Schleswig-Holstein Chamber of Industry and Commerce.
Winners Announced of IsDB Prize for Impactful Achievement in Islamic Economics
The first prize was awarded to Medikids, with its innovative waqf* initiative addressing management challenges in Indonesia. The project leverages Medikid's dental clinics for children and families to generate sustainable funding, which in turn finances a scholarship for healthcare professionals and supports social welfare initiatives. The committee decided to withhold second place. The Blue Filter initiative, which created a prototype to purify water by removing harmful pollutants, received the third-place prize. These awards will be presented at the IsDB Group Annual Meetings in Algiers, Algeria, between 19 and 22 May, 2025. IsDB Group Chairman Dr. Muhammad Al Jasser praised the winners for their contributions to Islamic economics, emphasizing the importance of translating principles into actionable initiatives for economic development. The selection committee highlighted the sustainable and effective nature of both winning projects, recognizing their alignment with IsDB's strategic goals. The IsDB Prize, established in 1998, initially focused on Islamic economics, banking, and finance. It expanded in 2020 to include categories of Development Achievement and Knowledge Contribution. The 2025 cycle emphasizes successful projects in IsDB member countries and Muslim communities globally. *waqf is a type of charitable endowment in islamic law. Image Credit: Islamic Development Bank
The Islamic Development Bank (IsDB) in Jeddah, Saudi Arabia, has announced the winners of the 2025 IsDB Prize for Impactful Achievement in Islamic Economics.
The Path to Tenure - In Discussion with Victoria Vanasco
CN: You received tenure in 2023 at CREI, having worked there for around five years previously as a Junior Researcher. When did you decide that a tenured position was a career goal? VV: Most research positions are of the tenure-track form, but this is not a promise of tenure, and typically if you do not get tenure by a given date you have to leave. For most people working in Academia, tenure is a career goal, as without it we have to leave the institution where we are (and sometimes the city or country), when our tenure is denied. Ideally, you get tenure at a place you like. I was lucky to get tenure at a place I REALLY like. The question was then ¨when to go up for tenure¨, and when professional activities started demanding a lot of my time (referee reports, participation in scientific committees, conference organization, seminar invitations, etc), I felt it was time. "Fate was involved in the decision, as I did not get some jobs I would have found very attractive." Victoria Vanasco CN: You grew up in Argentina, before looking abroad to continue your academic journey. Was this a tough step to make? VV: It was hard to decide whether I wanted to pursue the PhD abroad vs look for a good job locally. Fate was involved in the decision, as I did not get some jobs I would have found very attractive. I decided to take it step by step. First, what do I need to do now to apply for a PhD in a year? A Masters in Economics, so I started with that. In the meantime, I got a job as a Junior Professional Associate at the World Bank in the Buenos Aires office. This position lasted only two years, as the World Bank encourages juniors to pursue their academic endeavours. That really helped. By the time I was done with my Masters and with my two years at the World Bank I was excited about pursuing a PhD. It was also hard to leave Argentina, but once again, step by step. I could always come back if I did not like it. I liked it so much, I never came back. CN: What factors influenced your decision to continue your career in Spain, rather than the USA or Argentina, where you also have professional experience? VV: In academia, at least in economics, for most of us, our job offers determine where we will live. My husband and I are both in academia, we work on related topics, and Barcelona was a place where we were both happy to live and where both of us have fulfilling job opportunities. CN: Having progressed from an undergraduate to postgraduate, and through researcher and assistant professor positions, which stage(s) of your education and career stand out in your memory as the most challenging? VV: Academia is tough, and I was lucky enough to have only one really challenging moment in my career, which was the third year of the PhD. I was good at taking classes and exams, and then that was over, and I had to do research. How did you do research? I knew I liked theory, but how do you write a model? How do you choose an interesting question that you can actually answer? It was a lonely process: in my office, lots of frustration and staring at a white empty board. But then it happened, who knows how. In the middle of my fourth year I was already excited about what I was doing, somewhat knew what I was doing, and it has been exciting since then (disclaimer: doing research is always challenging, a strange mixture of frustration and excitement). CN: ...And which stage was the most enjoyable? VV: The most enjoyable was probably my job market, where I could present my research to a lot of people who were actually interested! I learned how nice it was to discuss the things you thought about in your office with the profession. It was really nice to know other people also found the problems I addressed interesting. Nothing is as intense as the job market in terms of visibility, but since then, the part I enjoy the most is being in my office alone thinking about the questions I care about, and then discussing my research with other researchers in the field (seminar, conferences, etc) CN: Between 2013 and 2021 you were awarded no less than 7 prizes and 7 scholarships. To what extent do you think these recognitions of your skill have helped you advance your career? VV: Wow, when you put it like that … I was not aware of this! I was extremely lucky to have my first job at the Stanford Graduate School of Business, where I was an Assistant Professor. This of course made a great impact in my career through two channels. First, it increased my visibility in the profession, and that is important when you are a young researcher (for example, it increases the chances of receiving awards). Second, and most importantly, I was able to spend the first four years of my career surrounded by the best academics working in my field, and I learned immensely from them. "My advice would be to pursue creative research, not prizes." Victoria Vanasco CN: …so how strongly would you advise students and young people just starting out in their career to pursue prizes? VV: I never pursued prizes, and I do not think that is something you can do. Also, prizes do not really change much in your career; you feel good when receiving them, but in the end, in our profession, you are judged by the quality of the research you do. So my advice would be to pursue creative research, not prizes. CN: In recent years, there has been a lot of discussion about the pressure on young academics to secure funding for their research, and by extension the insecurity around many junior academic positions. Did you experience this pressure? And what would your advice be to young scholars who are facing this? VV: I never had to struggle for funding, mainly because I have never been at institutions that struggle for funding. Here in Europe grant applications are a central part of our academic life, so we learn how to apply to them, and some work and some don’t. Also, as I work on applied theory, all I need is pen and paper, so research funding is not a determinant of the research I can do (while it is for other types of research or fields of study). CN: Thank you for your time! Victoria Vanasco - Short Biography (from CREI webpage): Victoria Vanasco is a Researcher at the Centre de Recerca en Economia International (CREi). Before joining CREi, she was an Assistant Professor of Finance at the Stanford Graduate School of Business. She earned her PhD in Economics from UC Berkeley in 2014, and she has a Masters in Finance and a B.A. in Economics from Universidad Torcuato Di Tella, in Argentina, where she is from. Before earning her PhD, she spent two years as a Junior Professional Associate at the World Bank. Her research has been published in top peer-reviewed journals, such as the Journal of Finance, Review of Financial Studies and the Journal of Financial Economics. Among other awards and grants, Victoria is the recipient of the 2018 Junior Prize in Monetary Economics and Finance awarded by Banque de France and Toulouse School of Economics, and of an ERC-Starting Grant for the period 2021-2026 for her project “INFOMAK: Information, Markets, and the Macroeconomy”. She is also a Research Fellow at CEPR, an Affiliated Professor at the Barcelona School of Economics (BSE) and at Universitat Pompeu Fabra (UPF), an Associate Editor at the Review of Financial Studies and the Journal of Financial Intermediation, and a member of the Editorial Board at The Review of Economic Studies. She also serves in the governing bodies of the European Finance Association, the European Economic Association, the Spanish Finance Association, and the Finance Theory Group Her research focuses on topics related to information asymmetries and their impact on financial markets and the real economy. She studies factors that lead to information and belief heterogeneity, and how these factors impact the incentives of market players to screen and monitor assets, with a focus on understanding how regulatory policies can increase liquidity and discipline in markets. Image Credit: CREI / Aksonsat Uanthoeng from Pexels
Victoria Vanasco is a Senior Researcher at CREI (Centre de Recerca en Economia Internacional) in Barcelona, Spain, as well as Adjunct Professor at Universitat Pompeu Fabra (UPF) and and Affiliated Professor at Barcelona School of Economics. As a newly tenured economist, she talks to Christopher Nash, Managing Director of INOMICS, about her career path. For readers currently working in academia with an ambition to achieve tenure, her experience offers valuable insight.
Reza Daniels announced as new Dean of the Faculty of Economic Management Sciences at Stellenbosch University
With extensive experience in leadership roles and a background in development economics, applied econometrics and environmental economics, Daniels is set to bring valuable expertise to his new position. He has a strong research background and has been involved in significant studies such as the National Income Dynamics Study. Additionally, Daniels has a track record of contributions to academia and beyond, having studied at the University of Auckland and the University of Michigan, before receiving his PhD from the University of Cape Town. He served in various roles in the public and private sectors, as well as for international development banks. His appointment has been welcomed by the university's leadership, Stellenbosch University Rector and Vice Chancellor Prof. Deresh Ramjugernath, who was quoted as saying: "I'm delighted to welcome Prof Reza Daniels to SU as the new Dean of the EMS Faculty. He joins us with a wealth of experience and an inspiring track record in higher education leadership, research and social impact." Ramjugernath added that Daniels has the potential to make a meaningful impact on both the institution and South Africa as a whole. Daniels expressed his excitement about joining the faculty at Stellenbosch University and his commitment to realizing the university's vision for the future, including further developing Stellenbosch as a knowledge hub in Africa, and producing economic and social impact. Image Credit: Reza Daniels
Prof. Reza Daniels has been appointed as the new Dean of the Faculty of Economic Management Sciences at Stellenbosch University in South Africa. His appointment comes after Prof Ingrid Woolard stepped down as Dean last year, with Daniels now set to lead the Faculty of EMS from November 1, 2025.