Cagé and Yanagizawa-Drott awarded 2025 Yrjö Jahnsson Award
Cagé's and Yanagizawa-Drott's work, spanning France, the USA, and Africa, emphasizes the powerful influence of media, including social media, on shaping political beliefs and actions. They warn against the risks associated with controlled media and stress the importance of media independence for a robust democracy. The prestigious award, established in 1993 by the Finnish Yrjö Jahnsson Foundation, recognizes European economists under 45 who have made significant contributions to theoretical and applied research essential to the economics field in Europe. The Award Committee, chaired by Kalina Manova and including members Esther Duflo, Nicola Fuchs-Schündeln, Ari Hyytinen, and Marco Ottaviani, selected Cagé and Yanagizawa-Drott for their groundbreaking work in the political and media spheres. Their research highlights the critical need for a free and independent media landscape to uphold democratic principles and safeguard against the potentially detrimental effects of media manipulation. Image Credits: Science Po / David Yanagizawa-Drott
Julia Cagé (Professor of Economics, Science Po) and David Yanagizawa-Drott (Professor of Economics, University of Zurich) have been honored with the 2025 Yrjö Jahnsson Award for their impactful research on political economy and media.
Public Economics & Economic Policy (JEL H)
Dr. Dirk Schumacher takes over role of Chief Economist at KfW Group (Germany)
KfW is one of the world’s leading promotional banks. On behalf of the Federal Republic of Germany and its constituent states, it finances projects and investments that support economic, social and environmental living conditions across the globe. KfW CEO Stefan Wintels praised Schumacher's appointment, noting his experience in the context of the German and wider European economy. “Having worked for a wide range of different banks as well as the European Central Bank, Dr Schumacher will bring many years of broad experience of economic analysis” Schumacher's career includes roles at Commerzbank, Goldman Sachs, and most recently, Natixis, where he led the European Macro Research Team. He will take over the Economics Department at KfW Research, succeeding Dr Fritzi Köhler-Geib, who left the bank in November 2024. Photo credit: KfW-Bildarchiv / Alexander Kempf
Dr Dirk Schumacher today takes over the role of Chief Economist at KfW Group.
Economic Development, Innovation and Growth (JEL O)
Agricultural and Environmental Economics (JEL Q)
Princeton Economics Appoints Four New Faculty Members: Jäger, Carry, Dano and Sandomirskiy
Professor Simon Jäger joins from MIT to focus on labor markets and inequality. Formerly head of the IZA Institute of Labor Economics in Germany, and advisor to the German government, his recent research delves into workers' beliefs about wages impacting job search and negotiation. Jäger expressed his enthusiasm for joining Princeton, stating, "The Department and the Section have an extraordinary legacy in advancing labor economics and industrial relations research, and it is both humbling and inspiring to join this remarkable community and shape it going forward." Pauline Carry joins from the University of Chicago, having previously earned her PhD at Institut Polytechnique de Paris. Now she has been appointed as an Assistant Professor at Princeton Economics. She focuses on labor economics and macroeconomics, most recently examining the effects of working time regulations on employment allocation. Expressing her excitement about her new role, Carry articulated, "Princeton is such a special place for economics; I am very excited to be a part of this group. I look forward to learning from colleagues and students, and contributing to the vibrant scholarly community here." Kevin Dano was most recently a postdoctoral research associate at Princeton, and has now been appointed as an Assistant Professor. He specializes in econometrics, panel data, and networks, introducing new methods in dynamic discrete choice models and network settings. Reflecting on his new position, Dano expressed his gratitude, saying, "I am thrilled to officially join Princeton Economics. Looking ahead, I'm excited to continue growing as a scholar in this fantastic community." Lastly, Fedor Sandomirskiy has been promoted to Assistant Professor, having previously worked in the department as a research scholar and lecturer. He is a microeconomic theorist who studies information economics and economic design, blending microeconomic insights with algorithmic game theory. His research explores information acquisition and mechanisms to improve outcomes in strategic interactions. Clearly looking forward to his new role at Princeton, Sandomirskiy was quoted as saying: "Princeton has long existed in my mind as something between legend and textbook—a place that shaped modern research in so many fields and gave birth to game theory. I never dreamed I could become part of it." Each new faculty member brings a unique expertise and research focus to Princeton's Economics Department, taking up their duties with the Spring Term underway from March 2025. Image Credits: Princeton University
Princeton University's Economics Department has been busy hiring in recent months. Now four prominent new faculty members join for the Spring 2025 semester: Simon Jäger, Pauline Carry, Kevin Dano and Fedor Sandomirskiy.
Econometrics, Statistics and Quantitative Methods (JEL C)
(Oxford) Diploma : Macroeconomics/Behavioural Economics
Key details: 48 hours of lectures on macroeconomics Several workbooks on macroeconomics Hundreds of discussions on macroeconomics Regular updates via Educational Announcements Behavioural Economics The Instructor has macroeconomics textbooks on Amazon Five reasons to TAKE THIS COURSE right now: 1. You cannot lose - 30 day refund if you really really don't like the course BUT if you DO like it: a. updated lectures b. case studies based on very very current news items c. detailed responses to messages d. I constantly attempt to have a 'class atmosphere' e.g. throwing questions open to all e. regular Announcements that are not disguised sales ploys f. regular FREE access to numerous other courses offered by me 2. I am a lecturer/teacher in Economics by trade i.e. I teach full-time for a living. I have been Principal, Director of Studies and Head of Economics. (Oxford, UK) I have lectured in University, adult evening classes and also run over 50 seminars in the UK 3. I am/have been an Examiner for FIVE different examination boards 4. I have 100+ books on Amazon - many of them about business/economics 5. The success of my students has been featured on the BBC, Daily Telegraph, The Times and I have been featured on TV in 2 countries. MOTIVATION I make courses on Udemy primarily because I enjoy the process of causing learning. Many of my courses are to improve lives. One of the Economics courses is to raise money for charity. (100% of revenue goes to the charity) Fundamentally this course here, is about helping you. About the course Using ONLY aggregate demand and aggregate supply, this course explains the basics of macro economic policy. The lectures are fully supported by notes - often repeated to ensure learning - that may be copied and used for other studies. If you wish to understand more as to why governments cut/raise taxes, cut/raise government expenditure, how this impacts on inflation, unemployment and growth - then this is the course for you. Topics: Gross Domestic Product (GDP): Measures the total value of all goods and services produced over a specific time period within a nation's borders. Unemployment Rate: Indicates the percentage of the labour force that is jobless and actively seeking employment. Inflation: Describes the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Monetary Policy: Involves the management of a nation's money supply and interest rates by its central bank to control inflation and stabilize currency. Fiscal Policy: Refers to the use of government spending and taxation to influence the economy. Interest Rates: The cost of borrowing money or the return for investing, which are critical in monetary policy and personal finance. Balance of Payments: A record of all economic transactions between residents of a country and the rest of the world in a given period. Exchange Rates: The value of one currency for the purpose of conversion to another, impacting international trade and investments. Economic Growth: The increase in the inflation-adjusted market value of the goods and services produced by an economy over time. Business Cycles: The upward and downward movements of GDP and other economic indicators over time, encompassing periods of expansion and contraction. Supply and Demand: The fundamental economic model of price determination in a market, showing how prices vary based on a balance between product availability and consumer desire. Aggregate Demand and Supply: The total demand for goods and services and total supply of goods and services within an economy at a given overall price level and in a given time period. Budget Deficits and Surplus: A budget deficit occurs when expenses exceed revenue, and a surplus occurs when revenue is higher than expenses. Public Debt: The total amount of money owed by the government to creditors, which can influence a country's fiscal policy and economic health. Trade Policies: Regulations and tariffs that a country applies to its imports and exports, affecting its balance of trade. Labour Markets: The supply and demand for labour, in which employees provide the supply and employers the demand. Capital Markets: Where savings and investments are channelled between suppliers who have capital and those who are in need of capital. Economic Indicators: Statistics that provide information about the overall health of the economy, such as GDP, unemployment rate, and inflation rate. Recessions: A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Stagflation: A situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high, presenting a dilemma for economic policy. The course is pitched at a beginner level and thus is IDEAL for anyone just starting an economics course or simply wants to understand macro-economic policy. The initial lectures are short - egg-timer size! - and, if you look at other egg-timer courses, you will know that if you have any questions then they will be answered very quickly. PLUS the course also includes Behavioural Economics. Behavioral economics melds psychology with economics, exploring why people sometimes make irrational decisions, and how their behaviour does not always follow the predictions of economic models. It challenges traditional assumptions of rational choice, investigating heuristics, biases, and framing effects that influence consumption, investment, and other economic activities. Who this course is for: Everyone interested in the world economies Anyone commencing a course in macro-economics 1st year Degree students Anyone who has an interest in understanding the basics of economic policy Non-specialists in Economics Beginners in Economics
Mastering Markets and Minds: An Interactive Journey Through Macroeconomics and Behavioural Economics. By Chris Sivewright / Oxford School of Learning.
Macroeconomics and Monetary Economics (JEL E)
Morris Davis appointed to Council of Economic Advisors as Chief Housing Economist
In his new role, Davis will provide guidance to president Trump on policies aimed at reducing housing costs and expanding housing availability. His expertise will be crucial in advising on strategies to increase housing supply and alleviate regulations that drive up housing costs. Davis expressed his honor in serving the country and his dedication to making housing affordable for all, adding: "My goal is to help the president make housing affordable for everyone." New Chairman Steve Miran told Rutgers Business School, where Davis has been employed since 2014, that “Morris will play a pivotal role as we work to build more homes and make housing affordable again for American families, helping to usher in President Trump’s economic Golden Age.” The Dean of Rutgers Business School, Lei Lei, in turn praised Davis and his role so far in influencing public policy: "Morris is a proven leader with innovative ideas that can positively affect real estate productivity and public policy today." Davis received his PhD in Economics from the University of Pennsylvania. He is noted for a much cited 2012 paper, which argued against subsidies for major US mortgage entities Fannie Mae and Freddie Mac and for a cut in mortgage interest deductions. The latter is an approach that has also been proposed by president Trump. Davis further advocates, for example in a 2019 paper, for consideration of the current market when making policy changes that affect the cost of borrowing. The Council of Economic Advisers, consisting of approximately 45 members, has been funded by Congress since 1946 to offer research supporting the president in formulating economic policies. Davis's appointment will last until December 2025. Image Credit: Rutgers Business School
Morris Davis, a professor at Rutgers Business School specializing in real estate, has been appointed to the White House Council of Economic Advisers as the chief housing economist. The news follows the high profile appointment last week of Stephen Miran as head of the CEA.
Roberto Serrano awarded the 2024 King of Spain Economics Prize
The award, established in 1986 by the José Celma Prieto Foundation, aims to honor individuals who contribute to economic knowledge and societal well-being. The ceremony, held at the Bank of Spain, was attended by economic and academic figures. Serrano, a Spanish-born economist currently teaching at Brown University in the U.S., received recognition for his academic and research achievements. King Felipe highlighted Serrano as a role model and emphasized the importance of rigorous research and knowledge dissemination in society. Serrano, who has published extensively on game theory and economics, has overcome challenges due to a visual impairment, becoming a respected figure in the academic world. His dedication to research and teaching has earned him accolades such as being named among "The Best 300 Professors" by Princeton Review. Image Credit: Casa de S.M. el Rey
King Felipe VI of Spain has presented the "King of Spain Economics Award 2024" to economist Roberto Serrano for his outstanding scientific and professional work in the field of economics.
Winta Beyene receives Marie Skłodowska-Curie Fellowship for work on Household Finance and Financial Resilience
Her project, titled The Credit Safety Net and the Costs of Credit Supply Shocks, delves into how households navigate unexpected income shocks, particularly those related to health, under varying levels of credit availability. Beyene's research sheds light on the impact of credit constraints on financial strategies like selling assets or adjusting homeownership and employment, aiming to propose policy solutions that can bolster social safety nets and shield financially vulnerable households. The European Commission, through its Horizon Europe program, sponsors the Marie Skłodowska-Curie Fellowship, providing funding, international networking opportunities, and professional growth for exceptional postdoctoral researchers. With this recognition, Beyene is set to advance her investigations in financial stability and the well-being of households. The Leibniz Institute for Financial Research SAFE ("Sustainable Architecture for Finance in Europe"), based in Frankfurt am Main, Germany, is dedicated to interdisciplinary research on financial markets and their participants in Europe as well as to research-based, independent policy advice. The institute focuses on the cooperation of researchers from the fields of finance, economics, law, and political science. Dr. Winta Beyene received her PhD from the SFI Swiss Finance Institute and the University of Zürich, having previously studied at the University of St. Gallen. Image Credit: SAFE Frankfurt
Winta Beyene, a Postdoctoral Researcher specializing in banking and finance at SAFE (Germany), has been granted a prestigious Marie Skłodowska-Curie Fellowship for her work on household finance and financial resilience.
Bank of Canada announces Reka Juhasz as recipient of the 2025 Governor’s Award
The Governor's Award provides financial support to academics at Canadian universities excelling in areas crucial to the Bank of Canada's functions, offering an annual research grant of $30,000 for up to two year. Juhasz's research primarily focuses on the impact of industrial policy on economic growth and how governments can enhance the effectiveness of such policies. This work is essential as global trade dynamics evolve and affect costs and inflation, with implications for monetary policy, a core function of the Bank. Dr. Juhasz is also the co-founder of The Industrial Policy Group and was the recipient of the Alexander Gerschenkron Prize in 2016. Additionally, Dr. Juhasz's research covers areas like international trade, economic history, growth, and development. She has been recognized for her contributions in top economic journals and as a mentor in her academic department. Image Credit: University of British Columbia
Dr. Reka Juhasz, an Assistant Professor of Economics at the Vancouver School of Economics, University of British Columbia, has been named the recipient of the Bank of Canada's 2025 Governor's Award.
Economist Antonio Aranibar Appointed as UN Resident Coordinator in Equatorial Guinea
With over 20 years of experience in sustainable development, governance, and peacebuilding, Aranibar previously served in various roles. Most recently he was the UN Special Advisor in Venezuela (until 2024) and between 2016 and 2018 he was Head of Office for the UN Verification Mission in Colombia, where he was involved in the peace process between the Colombian government and the Revolutionary Armed Forces of Colombia (FARC). He has also worked as a researcher and director for projects focusing on conflict prevention, dialogue promotion, and institutional reform in Latin America and the Caribbean. Aranibar holds a master's degree in econometrics from the Autonomous University of Madrid and a bachelor's degree in economic development from the University of Paris IX-Dauphine. The Resident Coordinator is the highest-ranking UN representative at the country level, reporting directly to the UN Secretary General. Resident Coordinators lead UN Country Teams and coordinate UN support to countries in implementing the 2030 Agenda. They represent the UN to engage with governments, civil society, and other partners to address the country's needs and priorities to achieve the Sustainable Development Goals, while also promoting UN values, coordinating operational activities, and managing the local UN team. Image Credit: United Nations Sustainable Development Group
Antonio Aranibar of Bolivia has been appointed by United Nations Secretary-General António Guterres as the United Nations Resident Coordinator in Equatorial Guinea, effective March 16, 2025, with the host Government’s approval. Aranibar takes over from Anna M. Pont, who, from 2022 to 2024, led the UN's program to implement the UN's Sustainable Development Goals in Equatorial Guinea.
Stephen Miran appointed as Chairman of the Council of Economic Advisers under President Trump
Dr. Miran worked as a senior advisor in the Treasury Department in the first Trump Administration. He holds a PhD in economics from Harvard, and until his appointment at the CEA was a fellow at the Manhattan Institute in New York, and a senior strategist at Hudson Bay Capital Management, where he recently (November 2024) published a "User's Guide to Restructuring the Global Trading System". In this, he investigates and recommends how tariffs and other tools could be used by the US government. Miran highlights the effectiveness of tariffs on China from 2018-2019, emphasizing the negligible macroeconomic consequences and increased U.S. Treasury revenue. He suggests managing the strong dollar's impact on American manufacturing through policies aiming to improve burden sharing with trading partners. Miran also proposes negotiation tactics, including gradual tariff increases, forward guidance on policy, and tax cuts to counteract price competition for U.S. exporters. He further warns against retaliatory tariffs, stating the U.S. can withstand escalation better due to its strong consumer demand and robust markets. Trump's emphasis on American production and low taxes has been reiterated and confirmed through statements and policies in the first quarter of 2025. Miran's confirmation and imminent appointment is timely as these policies, including tariffs, come into effect in April 2025 on multiple imports from Mexico, Canada, China and the European Union. Image Credit: Manhattan Institute
Stephen Miran is the new Chairman of the Council of Economic Advisers (CEA). He was confirmed by unanimous vote on March 12 2025 by the Senate Committee on Banking, Housing and Urban Affairs.
Take a deep breath, read this article, and start brainstorming! Step 0: Understand What a Research Proposal is For The main purpose of your research proposal is to give the admissions committee an idea of two things: your ability to conduct quality research in economics, and your suitability for the program itself. Because of its importance, it’s also highly advisable to start this process as early as possible – ideally several months before application deadlines. Your proposal should indicate to the admissions committee that you understand the field and are capable of (with the right training and supervision) producing quality economics research. The topic you choose, the initial literature review you conduct, your intended methodology, and more: all of these will signal to the admissions committee that you either understand what it takes to conduct serious research, or that you do not. But even if the committee believes your research proposal is excellent, you may not be admitted. That’s because the second purpose of the proposal is to show that your research interests are a good fit for that specific economics department’s work. Remember, to earn your PhD, there must be a faculty member at that school who’s willing to supervise your research! You could have an absolutely amazing research proposal on microfinance, yet be rejected by the program on the grounds that none of their economics faculty are interested in microfinance. That’s why the next two steps in the process are critically important. Step 1: Identify your Research Interests Before you start writing your proposal, you obviously need a topic. It’s important to identify what you’re most interested in, especially since – if you’re accepted – research in this area will become your life for the next several years! The field of economics is vast, and there are a wide variety of papers being published. If you’re unsure where to start, first consider the economics classes you’ve enjoyed most in the past. Do you enjoy microeconomic theory, or empirical macroeconomics? Perhaps behavioral economics is more your style, or maybe environmental economics is calling to you. Once you’ve chosen a general subfield (or two), reading recently published papers in those subfields is a great way to start digging for a topic. Ask yourself: which of these papers are most interesting? What research methods could you alter, or employ for a different but related question, to produce original work? What further research identified by the authors sounds interesting to you? Is there any topic or question that you think is missing from current research output? If you’re still struggling to settle on a topic after exploring, check out our article about how to choose a topic for your economics research for more advice. Step 2: Investigate the School and Faculty Research Interests You’ve chosen a research topic; excellent work! Now, recall that an important part of the research proposal’s job is to show the admissions committee that your interests align with those of the economics department. It’s time for you to start a very important investigation. This process will look different depending on the type of program you apply to. For instance, many European-style PhD programs will require you to reach out to potential supervisors directly, and receive their approval before you submit your application. In this case, you must research the school’s faculty, check their research output, and message the individuals that you think would be both interested in your research idea and make an effective supervisor for you – preferably far in advance of the deadline. American-style PhD programs, or PhD programs that begin with a taught component like some MPhil/PhD options, may not ask you to identify a supervisor when you apply. However, even these programs will be judging your proposal based on how well it fits within the research interests of the economics department – so you’ll still need to do some digging. Overall, you should expect to spend a decent amount of time looking up professors and their research interests, as well as any specialized research groups within the economics department and the department’s research output. Resources like RePEc may help you out here. As you investigate, ask yourself – honestly – whether you could see these faculty members being interested in your topic and choosing to supervise you. If your answer isn’t a clear “yes”, keep in mind that it will be significantly harder for that admissions committee to justify giving you an offer. Depending on how many schools you intend to apply to, you may even consider writing multiple research proposals on different topics. While this may sound like a lot of work, it’s a far better strategy than writing just one proposal and hoping it fits everywhere. Step 3: Drafting: What to Include in Your Proposal After you’ve chosen a research topic and confirmed that there are professors who would most likely want to supervise your idea, it’s time to start drafting. You can think of a research proposal as a mini-research paper, where you walk through the typical steps of doing research but stop short of actually conducting data collection and testing hypotheses. Instead, you simply describe what you would do. A research proposal typically includes the following sections: - Introduction/research question - Preliminary literature review - Proposed methodology & proposed data - Possible future research - References & Bibliography You may also choose to include small sections on the potential supervisors you’ve identified at the program in question, why your research is a good fit for the department, and your funding situation. Introduction & research question This brief section should be thought of like an abstract, except that you don’t have conclusions to share. Instead, state clearly what you aim to research, and what your main research questions/hypotheses are. Preliminary literature review This is an important section. Here, you ought to write a literature review as if you’re actually going to conduct the research. What is the current state of the economics literature surrounding this question? What insights have other papers offered? Where’s the gap in the literature? What papers will you be mainly relying on or building off of? Answering these questions as you write your review will help show the admissions committee that you understand how to read the literature and conduct quality research. Don’t skimp on this section, or the reading you must do in order to build it properly. The more you understand about the literature surrounding your topic, the easier it will be for you to write about your methodology, and the more well-prepared you’ll be for potential interviews. A side note here about using AI – while AI tools can help you identify sources that are relevant to your literature review, do not rely on them completely. Further, do not use AI to write any portion of your research proposal. If you use AI to help find sources, take the time to then read the sources carefully and critically. Are they really as relevant as they seem? Do the findings truly match any claims you have made in your proposal? Don’t get caught out by trusting that an AI suggestion is a good suggestion. As of 2025, AI tools are far from infallible when it comes to postgraduate level research, and in the worst case might even create statistics out of thin air to support your argument (this is a common AI problem known as “hallucination”). Use AI tools with extreme caution, if at all! Methodology & Data In this section, you should aim to be as clear and objective as possible. Restate your hypothesis, then describe the methods you intend to employ to test it. List specific data sources as much as you can. Use econometric language, identify specific models you’ll likely employ, or describe the type of experiment you’ll design. This section should show clearly that you’ve put serious thought into answering your research questions and that you know how to test your hypotheses effectively. Further, listing actual data sources will make it clear that your research idea is feasible, not just hypothetical. Along with the literature review, this section should be the largest and most comprehensive in your proposal. Don’t hold anything back – aim to impress your readers here! Future research Including a small section about future research that could stem from your work is a nice touch. The faculty and admissions committee understand that a research proposal doesn’t always end up being exactly what a PhD student will work on. But, if you list future or related research that could stem from this proposal, it’ll be easy for the committee to see how you could continue to become an expert on this particular sub-topic, and how you could contribute to the literature for years to come. It could also be a good way for you to pivot, if you later decide that your original proposal wouldn’t be the best dissertation topic. References & Bibliography Citing your sources is crucially important. That’s partly because plagiarism is a serious offense, of course. But in addition, having a quality bibliography and reference section is another great signal to the committee that you’re a good candidate and should be seriously considered. Step 4: Reaching Out to Potential Supervisors Drafting your research proposal is no walk in the park, so once you’ve finished, pat yourself on the back! Depending on the types of programs you’re applying to, identifying a willing supervisor may or may not be part of the application process. If it is, you should start reaching out to faculty members who might be willing to supervise you as soon as you have an initial proposal drafted. Include the draft in your message to them, along with your CV. Typically, professors are fairly responsive. Even so, your mileage may vary with this process. If your proposal seems overly amateurish or underbaked, you’re unlikely to get a positive response, even if the topic aligns with the individuals’ research interests. Further, some professors may not be accepting new students. Sometimes university websites indicate which professors are open to receiving new PhD students, but it’s entirely possible that your first choice of supervisor isn’t available. Even if you do receive a positive response, you may be asked to make updates or edits before a professor is willing to say “yes”. If you’ve reached this point, don’t despair – it’s actually a very good sign that you’re on the right track, and that you’ve done well in finding a potential supervisor with similar research interests to you. Step 5: Don’t Give Up! Writing a quality research proposal is hard work. So is studying for your PhD! But it’s important to keep in mind that there is a reason for all of this work. Finding and getting admitted to the right economics program will make your journey towards earning your PhD much more enjoyable. Moreover, it’ll help immensely when the trials and difficulties of PhD research threaten to burn you out. Crafting your research proposal should get you excited to narrow down into a specific topic, and imagine getting your own research published. What question have other economists not answered, but you think is important or interesting? How can you uniquely contribute to the literature? Your research proposal should give you a clear idea of the answer! Image Credit: Fizkes / Shutterstock (Licensed Image - Copyright) <11an>limit3;categories:PhD Programs</11an>
If you’re applying for a European-style economics PhD or Master’s of Research program, it’s highly likely that you’ll be asked to submit a research proposal. This is a document where you’ll describe the original research project you intend to pursue if you’re accepted into the economics program. This is going to be a fairly intense process. While not legally binding, this document is a major part of your application, and it’s extremely important to write a convincing and high-quality proposal. Giving yourself as much time as possible to work on it can only help you. However, if you’re applying to PhDs for the first time, this is also most likely your first time writing an economics research proposal. So, what to do?
BBVA Foundation announces Frontiers of Knowledge Award Winners in Economics, Finance, and Management 2025
The trio were recognized for their establishment of rigorous foundations for studying business cycle fluctuations and their development of the New Keynesian paradigm. Their model integrates monopolistic competition and nominal and real rigidities into dynamic general equilibrium models with rational expectations, analyzing the effects of monetary and fiscal policy on economic activity, unemployment, and inflation. The laureates' work has significantly influenced central banks' monetary policy decisions globally and has become a key component of economic teaching. The multidisciplinary panel of evaluators praised their groundbreaking research, which emphasizes the role of expectations in economic decision-making and has guided central banks in designing effective monetary policies, especially during times of crisis. The awards, established in 2008, aim to recognize contributions that expand knowledge within a discipline or bridge interdisciplinary areas, acknowledging the crucial role of knowledge in addressing contemporary challenges. Download the full press release here. Image Credit: BBVA Foundation
Economists Olivier Blanchard (MIT), Jordi Galí (CREI/CEPR/NBER), and Michael Woodford (NBER/CEPR/CESifo) have been awarded the prestigious BBVA Foundation Frontiers of Knowledge Awards in Economics, Finance, and Management for their contributions to modern macroeconomic analysis.
The Price of Love - A Valentine’s Day Look at the Cost of Romance
Valentine's Day spending reflects the economic climate, with key factors affecting consumer confidence, inflation and jobs affecting people's spending2. When the economy is doing well, unsurprisingly, people spend more, buying bigger gifts and planning grand celebrations. So let's get into the economics of Valentine's Day a bit more. The Rising Costs of Valentine’s Day Valentine’s Day has evolved into a multi-billion-dollar industry, with spending trends rising each year. Many would argue that it has become a commercialised celebration driven by consumerism, where businesses capitalise on romantic expectations to boost sales. Social media has magnified these romantic expectations, where individuals often showcase their gifts and experiences, creating a culture of comparison and competition. The desire to "outperform" others in demonstrating love and affection further fuels consumer spending. The costs associated with celebrating love include: Gifts and Flowers: The price of roses often surges in February due to increased demand, demonstrating classic supply and demand principles. Florists and retailers anticipate this spike, adjusting prices to maximise profits during this peak season. Dining Out: Restaurants capitalize on the holiday by offering special (and often pricier) Valentine’s menus. Many establishments introduce fixed-price dinners with curated courses, which are marketed as exclusive experiences, thereby justifying higher prices. Jewellery and Luxury Items: Retailers view Valentine’s Day as a peak sales period, aggressively marketing high-end gifts as ultimate expressions of love. Campaigns often emphasize that nothing says "I love you" like a sparkling diamond or luxury watch, reinforcing the association between material value and emotional significance. Spending statistics reveal the staggering scale of Valentine’s Day as an economic event. The US tops the chart by a significant margin for average spending per person, with an astonishing $192.50. According to Statista, it is predicted that in the U.S. alone, consumers will spend approximately $6.5 billion on jewellery, $5.4 billion on a night out, $5.4 billion on flowers and candy, and “only” $1.4 billion on cards3. These figures highlight how the holiday drives substantial revenue across multiple industries, from florists to fine dining to luxury retailers. In comparison, the United Kingdom ranks second, with average spending per person significantly lower at a predicted $52-$70 for 2025, less than half the amount spent by the average American 4. This stark contrast underscores the cultural and economic differences in how Valentine’s Day is celebrated across countries. Behavioural Economics and Romantic Spending Behavioural economics and psychology offer profound insights into why individuals often spend more than they intend on Valentine’s Day. This can be attributed to a complex interplay of cognitive biases, emotional drivers, and social influences that shape consumer behaviour in subtle yet powerful ways. One of the most significant factors is the influence of social norms and peer pressure. Valentine’s Day is culturally framed as a time to express love and affection through material gifts and special experiences. Societal expectations often create an implicit standard of what constitutes an appropriate display of affection, leading individuals to feel obligated to spend money to meet these norms. The fear of social judgment or being perceived as less committed can drive people to purchase extravagant gifts, not necessarily out of personal desire but to conform to the expectations set by their social circles and media portrayals. Loss aversion, a key concept in behavioural economics, further amplifies this tendency. According to this principle, people experience the pain of loss more intensely than the pleasure of an equivalent gain. In the context of Valentine’s Day, the potential “loss” is emotional—the fear of disappointing a partner, causing relational strain or appearing neglectful5. This fear can motivate individuals to overspend, as they aim to avoid the negative emotional consequences associated with perceived inadequacy or failure to meet their partner's expectations. The halo effect6 also plays a pivotal role in Valentine’s Day spending. This cognitive bias causes people to associate the quality of a gift with the depth of the giver’s affection. Expensive gifts are often perceived as indicators of greater love and commitment, leading consumers to equate higher spending with stronger emotional expression. This misconception can pressure individuals to choose costly items, believing that their monetary value will enhance the perceived sincerity of their sentiments. Another influential bias is anchoring7 where initial exposure to a price sets a mental benchmark that influences subsequent purchasing decisions. High-end advertisements and luxury brand promotions prevalent during the Valentine’s season establish these anchors, making moderately priced items seem more reasonable or affordable by comparison. This effect can subtly nudge consumers towards spending more than they initially planned, as their perception of value has been skewed by earlier price exposures. The scarcity principle8 adds yet another layer to the dynamics of Valentine’s Day spending. Limited-time offers, exclusive deals, and seasonal products create a sense of urgency and exclusivity. This scarcity effect taps into the fear of missing out (FOMO), compelling consumers to make impulsive purchases to secure what they perceive as rare or fleeting opportunities. Retailers strategically exploit this bias through marketing tactics that highlight the limited availability of certain products, thereby driving up demand and, consequently, consumer spending. Cultural Variations in Valentine's Day Celebrations Valentine's Day is celebrated differently around the world, reflecting diverse cultural norms and traditions. In Japan, for example, women typically give chocolates to men on February 14, with men reciprocating a month later on White Day9. In South Korea, the celebration extends even further, with couples marking the 14th of every month as a special occasion, such as Kiss Day and Rose Day10. In Finland and Estonia, Valentine's Day is more about celebrating friendship rather than romantic love, known as Friend's Day11. In contrast, countries like France and Italy emphasise romantic gestures steeped in historical traditions, such as exchanging love letters and symbolic gifts. These cultural variations influence how people spend money on the holiday, with local customs shaping the types of gifts, experiences, and economic behaviours associated with Valentine's Day. Conclusion: Balancing Love and Economics While love is priceless, the way we celebrate it comes with financial implications. Recognising the behavioural and economic factors behind romantic spending can help individuals navigate Valentine’s Day with both their hearts and wallets in mind. Perhaps the best investment is not in expensive gifts but in meaningful, lasting experiences that strengthen relationships without breaking the bank. Works Cited “The untold truth about Valentine's Day: From violence to modern-day romance.” NBC Washington, 2025, https://www.nbcwashington.com/entertainment/holidays/history-behind-valentines-day/3824661/. “The Cost of Valentine's Day in the US vs Other Countries.” Remitly, 2025, https://blog.remitly.com/lifestyle-culture/cost-of-valentines-day/. “Valentine's Day total expected spending on selected gifts in the United States in 2025, by category.” Statista, 2025, https://www.statista.com/statistics/285034/us-valentine-s-day-sales-by-category/. Barber, Sophie. “Valentine’s Day statistics 2025: What is the average spend? Source: https://www.finder.com/uk/credit-cards/best-credit-cards/valentines-day-statistics Analysis conducted by finder.com.” Finder, 2025, https://www.finder.com/uk/credit-cards/best-credit-cards/valentines-day-statistics. Tsipursky, Gleb. “Valentine’s Day Gift Giving with a Purpose: How to Make a Difference Together.” Intentional Insights, 2024, https://intentionalinsights.org/valentines-day-gift-giving-with-a-purpose-how-to-make-a-difference-together/. “Why do positive impressions produced in one area positively influence our opinions in another area?” The Decision Lab, https://thedecisionlab.com/biases/halo-effect. “Anchoring (heuristic).” Behavioural Economics .com, https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/anchoring-heuristic/. Chen, James. “Scarcity Principle: Definition, Importance, and Example.” Investopedia, 2024, https://www.investopedia.com/terms/s/scarcity-principle.asp. “White Day.” About Japan: A Teachers Resource, 2025, https://aboutjapan.japansociety.org/white_day#sthash.tsPqtrVT.dpbs. “Why the 14th day of each month in Korea is special.” Korea.net, 2021, https://www.korea.net/NewsFocus/HonoraryReporters/view?articleId=200941. Godin, Melissa. “Why Valentine’s Day in These European Countries Is All About Friendship.” The Times, 2020, https://time.com/5778265/valentines-day-finland-estonia/.
With Valentine’s Day approaching, it's intriguing to explore the economics of love—how much we spend, why we do it, and whether it’s worth the investment. Romance, like any market, operates on supply, demand and consumer behaviour with prices fluctuating based on cultural expectations and economic conditions. Valentine’s Day traces its origins to ancient Rome, where the festival of Lupercalia on Feb 13-15 celebrated fertility and matchmaking. Later, it was linked to Saint Valentine, a priest who secretly performed marriages against Emperor Claudius II’s orders and was executed on February 14, 269 AD. By the 14th century, poets like Geoffrey Chaucer romanticised the day, associating it with courtship. By the 19th century, mass-produced Valentine’s cards became popular, evolving into today’s global celebration of love, marked by gifts, flowers, and heartfelt gestures1.
IS-LM Model (Investment-Savings / Liquidity preference - Money supply)
The two major components of the IS-LM model are the “Investment-Savings” curve (or IS curve), and the “Liquidity preference-Money supply” curve (or LM curve). Where they intersect, the real interest rate and real economic output are balanced, such that the “product market” and the “money market” are in equilibrium; in other words, there is just enough money in circulation to facilitate all of the transactions that economic agents want to conduct. The model was originally developed in the 1930s by John Hicks, who was expanding on the ideas of John Maynard Keynes. At the time, controlling the money supply was seen as a more important lever for policymakers than it typically is today. Since the IS-LM model can help explain how the money supply influences economic growth (for instance, as measured by GDP), it became a key tool of macroeconomic policy until later that century. In the 1970s and 1980s, when inflation became more of a major economic concern, the IS-LM model fell out of favor and policymakers started to focus on inflation and interest rates more than the money supply. Despite the model’s limitations, however, economists usually agree that it’s a good foundation for students, and thus it’s still widely taught in introductory macroeconomics courses. Figure 1 shows the basic IS-LM model in equilibrium. The IS (Investment Savings) Curve The graph of the IS Curve shows every point in the economy where overall income and the real interest rate are “in equilibrium”. Thus, the real interest rate r is on the vertical axis and income (or output) Y on the horizontal axis. Yet, these quantities don’t directly affect each other; the curve is effectively hiding equilibrium in two different markets that determine its shape. These two markets are the “expenditures market” or “Keynesian cross diagram” (the top graph in Figure 2), which shows where income and expenditures in the economy are equal, and the “goods market” (the middle graph in Figure 2), where the real interest rate holds desired savings and desired investment in equilibrium. In a way, the IS curve is built by taking one axis from each of these two diagrams and smashing them together. This is best illustrated with Figure 2 below. The top graph in Figure 2 depicts an economic expansion where an increase in demand led to higher economic output. Due to the higher output, the amount of savings (equivalently, investment) in the economy increases, represented by a movement along the I(r) curve in the middle graph. Because there is a higher demand for savings, the interest rate falls, since it represents the return on savings that banks pay out. These two realities – increased output and a decreased interest rate – are represented by a single movement along the IS curve in the bottom graph. The IS curve is downward-sloping because as the interest rate falls, more investments are worth funding (remember that interest rates represent the cost of borrowing, too: in a falling interest-rate scenario, borrowing money is cheaper!). The increased amount of investments increases potential economic growth. Conversely, at a higher interest rate, fewer economic agents wish to borrow to fund productive projects; this decreases potential growth. Taken from another perspective, the IS curve in economics also shows combinations of the real interest rate and output where the economy is in equilibrium, which in turn determines, or can be used to help anticipate, the level of aggregate demand. The LM (Liquidity-Money) Curve The LM curve shows where the money market is in equilibrium. At every point on the LM curve, liquidity preferences, income, and the real interest rate are such that the amount of money demanded is equal to the money supply. Recall that the interest rate represents the return to savings, and therefore the “cost” of holding onto cash. As the interest rate increases, the demand for money decreases. Conversely, as income increases, money demand also increases. To see why, suppose someone is holding $1000 in cash. This would feel like a lot of money for a college student with a limited income – but to a wealthy capitalist, $1000 is worth much less compared to the money they have available. It probably feels more like pocket change. Generally, when incomes (and by extension wealth) rise, money demand also rises. The “liquidity preferences” part of the LM curve’s name reflects the amount of cash people are willing to hold in general, regardless of their income or interest rates. When people prefer to hold more cash, relatively speaking, the LM curve will be flatter (because it will take a larger increase in the interest rate to convince them to put their cash into savings), and vice versa. Figure 3 shows the derivation of the LM curve from the money market equilibrium. In Figure 3, the money demand curve slopes downward in the first graph because as the interest rate falls, there is less incentive to save money and less cost of holding cash. A shift in money demand (which can happen due to, for example, consumer preferences) shifts the interest rate in response. Note that since the money supply is exogenously determined by the central bank (and commercial banks), Figure 3 determines the interest rate that will result from the central bank’s monetary policy and the amount of money demand. When the economy expands and GDP increases, money demand will shift upwards, increasing the interest rate at the fixed money supply. This is due to classic supply and demand dynamics; with a higher demand for money but the same supply, the “price” of holding money (the interest rate!) must increase. The LM curve is upward-sloping in Figure 3, which is a facsimile of the curve in Figure 1. Note that on the left graph of Figure 3, the horizontal axis measures money demand/supply, but on the right side of Figure 3 (and in Figure 1) it measures income. Thus, the LM curve slopes upwards in Figure 1 because as income rises, money demand (and the interest rate) increases. This difference merely reflects a change in perspective, and should not be confused. The IS-LM Equation To consider the dynamics of the IS-LM model, it helps to look at the algebra behind both curves. The IS Curve is defined by the equation: Y = C(Y – T(Y)) + I(r) + G + NX(Y) where Y represents income (or output), C represents consumption, T shows taxes (as a function of income), I stands for investment, G is government spending, and NX is net exports. Students of macroeconomics will likely recognize this as very similar to the equations for aggregate demand and the expenditure approach of calculating GDP. But, there are a few key differences to discuss. Often in mathematics, parentheses are used next to a variable to denote what factors determine the level of that variable. Here, then, the terms I(r) and NX(Y) show that here investment is a function of the real interest rate r, and net exports are a function of income Y. This makes sense; as income increases, people buy more goods, including goods from abroad (imports). And, clearly, the level of investment responds to changes in the real interest rate. The C(Y – T(Y)) term shows that consumption in the IS curve is a function of both income and taxes (which itself is a function of income). This makes sense, too. The more income people have, the more they can spend and the more they’re taxed; and, taxes reduce discretionary income. The equation for the LM Curve follows: M / P = L(i,Y) where M is the money supply, P is the price level (such that M / P shows the “real” money supply) and liquidity preferences L are a function of the nominal interest rate i and income Y. A specific functional form for the liquidity preferences equation isn’t given, but we know that it’s negatively related to the nominal interest rate and positively related to income (since people hold more cash as the interest rate declines and as income increases). IS-LM Dynamics Keeping these equations in mind shows clearly what economic phenomena will shift either the IS curve or the LM curve. Changes in one of the IS curve’s components – consumption, income, taxes, government spending, investment, or net exports – will cause a shift in the IS curve and therefore change the IS-LM equilibrium. For example, consider a case where the government increases spending. While this must be funded by increases in taxes, which reduce consumption (in part due to crowding out), suppose that the multiplier effect is large and the increase in government spending ends up promoting growth. This increases income Y, and leads to an upward shift in the IS curve. The increase in income is represented by the upward shift of the IS Curve, leading to a higher real interest rate at the new intersection with the LM Curve. The economy’s output grows as income rises, and the equilibrium interest rate is higher than before. Suppose that, simultaneously, the central bank increases the money supply M such that M / P increases. This shifts the LM curve to the right, increasing output/income while reducing the interest rate. Figure 4 shows a possible result of these changes. In Figure 4, after both curves shifted, the economy ended up with a higher level of output and an unchanged interest rate. Of course, it’s possible for the interest rate to be higher (if the IS curve shifts more than the LM curve) or lower (if the LM curve shifts more than the IS curve). These simple examples represent two important levers for policymakers. The shift in the IS curve resulted from an act of fiscal policy, and the shift in the LM curve from an act of monetary policy. The usefulness of depicting these changes and predicting their outcomes led to the model’s former popularity. Good to Know However, the IS-LM model has fallen out of favor in recent years for several reasons. First, the model’s assumption that central banks focus on changing the money supply to affect the economy can be seen as outdated. Nowadays, central banks tend to focus on the interest rate itself (though there are notable exceptions to this, including “quantitative easing” policies in western economies prompted by the 2008 financial crisis) rather than the money supply, such that many economic models directly assume that the interest rate is set by the central bank. Second, and very importantly, the IS-LM model assumes that the price level is constant. Notice how the price level P appears in the denominator of the LM curve equation, and is not considered a function of any particular variable (it is exogenous). Further, the real money supply is depicted as a vertical line in the money market. It may seem strange now, since inflation is considered a critically important indicator of economic health, but until the 1970s (when stagflation reared its ugly head and stumped economists), it was much less of a concern for most policymakers. Obviously, this feature of the IS-LM model makes it unsuitable for studying inflation, and thus the model is unable to propose any policy solutions to combat inflation issues. This severely limits its usefulness, and macroeconomists have largely moved away from it. Yet despite these fatal flaws, the IS-LM model is still widely taught in macroeconomics courses (though it tends to disappear in advanced macroeconomics). It’s a fundamental model that brings together many important concepts, and that undergraduates will certainly be tested on.
The IS-LM Model is a foundational macroeconomic model of describing the relationship between the interest rate and economic output. Using two curves, it depicts an array of equilibria for the economy and can be used to assess the potential impacts of fiscal and monetary policies.
Applying for a PhD: Should you do a Master of Research?
Introducing the Master of Research<o:p></o:p> The Master of Research (or MRes) is an advanced post-graduate degree that is considered a stepping-stone towards PhD study. Often, and perhaps confusingly, this type of degree requires applicants to have a Master’s degree in the relevant subject area already. Importantly, the two types of Master’s are often differentiated: a Master of Science in Economics is often referred to as a “taught” Master’s, while an MRes is referred to as a “research” Master’s. However, an MRes is still a Master’s degree and not a PhD-level certification.<o:p></o:p> These degrees can go by several different names, and are most commonly available in the UK, Australia, Ireland, Singapore, and Hong Kong. These programs may also be listed as MPhil/PhD programs (standing for Master of Philosophy/PhD), or “Master of Letters”, abbreviated M.Litt programs (typically in Ireland). Although this type of degree can be very helpful as a stepping-stone to a PhD, they can be little-known outside of the countries that offer them.<o:p></o:p> MRes programs aim to prepare their students for serious academic research work, and expect that students come already equipped with significant subject matter knowledge – hence why many outright require applicants to already hold a taught Master’s degree. These programs typically last one to two years and are rarely longer. Most programs also require students to write a Master’s thesis (even if you’ve already written one before!). After completing an MRes in economics, students will have training not only in economics subject matter, but in conducting economic research as well, something that Master of Science programs often don’t have much time for. Many MRes programs – as evidenced by the MPhil/PhD moniker – often expect their students to continue into a PhD program immediately afterward.<o:p></o:p> Is an MRes right for you?<o:p></o:p> Pursuing an Economics MRes (or equivalently, an MPhil/PhD or MLitt program) could be an excellent choice for your path to a PhD. However, it’s far from the only option. How to decide? One reason to pursue an MRes over immediately applying for PhD programs is that an MRes will help your academic profile become stronger. The additional training in research specifically shows that you’re serious about pursuing academic work, and a high mark on the MRes thesis could be a significant indicator of your suitability for an economics PhD. Thus, this could be a great option for former Master’s students with good, but not great, grades. Grades are very important when applying for PhD programs. High marks in an MRes could cover nicely for more average grades in a Master of Science, making you a more competitive PhD applicant.<o:p></o:p> More importantly – also for those with top grades in their previous economics degree – an MRes program is a gentler way to explore the rigor and lifestyle of conducting academic research than simply jumping straight into a PhD program. This makes it an excellent choice for students who are still “on the fence” with regard to a PhD, as you’ll get a strong sense of what PhD research would entail. If the MRes goes well, and the work is enjoyable, it’s a great sign, both for you and for potential PhD supervisors, that you’re ready for the rigor and discipline required to get your PhD. If not – perhaps a career in industry is a better choice for you. Finally, completing an MRes gives you more time to meet students and faculty and explore the field of economics. If you’re unsure of what specifically you’d like to research, this can be a great way to explore sub-fields on the frontier of economics research and the methods you must master in order to succeed. It can also help you build relationships with faculty, who can guide and advise you, and who may even become your future PhD supervisor if you choose to continue. It’s important to note that MRes students are typically expected to continue on to a PhD, but it’s also possible to leave after completing the MRes and seek a job in industry. Some research-intensive professions may appreciate the additional research experience without requiring a PhD. However, this situation corresponds to a minority of graduates. If you plan to work in industry after earning your MRes, it’s highly advisable to have specific positions in mind that would justify the MRes qualification, but not require a PhD.<o:p></o:p> RA vs MRes: similar benefits, different experiences Applying directly to a PhD is very possible, particularly for strong students with excellent grades who have had opportunities to participate in academic research during their studies. But, for those students who wish to spend some time gaining more research experience before diving into the full commitment of a PhD, it helps to understand the differences between doing an MRes or working as an RA. It’s worth noting that many of the benefits of earning an MRes have some overlap with the benefits you’d enjoy from working as a Research Assistant. If you want research experience before diving into a PhD, both are options you should strongly consider. Research Assistants help professors conduct actual academic work that will be published. It’s a great way to get your name out there and begin to add research credentials to your academic CV. However, being an RA limits your exposure to the project(s) that you’re given. If you don’t end up liking the sub-field of that specific research, it can be awkward to pivot to a new one. And, you will likely be very beholden to the needs of the project(s) and professor(s) leading them, with little room to explore your own research interests. An MRes offers less of a chance to have your name appear in published research, but is a more structured way to gain additional research experience. And, you’ll be able to write your Master thesis in a field that interests you the most, while building a potential foundation for your PhD thesis. Finally, the added benefit of earning high grades in an MRes shouldn’t be overlooked if you wish to improve your academic profile. Both RAs and MRes programs may be connected to a PhD program. In both cases, you may be able to start your PhD in parallel. Usually, for an RAship, the PhD is expected to be related to the project you are working with, and your supervisor is usually expected to be one of the professors you’ve been working for. For an MRes program, your eventual PhD topic may be more flexible – though it’s certainly advisable to do your MRes thesis on a topic you expect to explore via your future dissertation. Finally, one major difference between these two paths is funding. Research assistants are paid, while MRes students must often pay tuition (though of course, scholarships may be available). Financial considerations are of course very important, and you must make the right decision for your current situation and goals.<o:p></o:p> Concluding Thoughts<o:p></o:p> Overall, applying for a Master of Research program is a perhaps lesser-known but excellent option when preparing for a PhD. Whether or not it’s the right path for you depends on your own goals and personal situation. We hope this article was helpful. Here at INOMICS, we wish you all the best in your studies and future endeavors. Good luck! Image Credit: Atstock Productions / Shutterstock (licensed image, copyright) <11an>limit3;categories:PhD Candidate;Research Assistant / Technician;PhD Programs</11an><o:p></o:p>
There are many paths to preparing for an economics PhD. Most students apply for PhD programs soon after finishing their Master’s degree. Some even apply directly after their Bachelor’s degree. Others work first, for example as a research assistant before applying. There are benefits to all of these approaches, and depending on your academic accomplishments and personal goals, some paths may suit you better than others. In this article we look in depth at the merits of a Masters of Research (MRes) as an option for PhD hopefuls. We also compare the MRes path with a direct application for a PhD after your studies, or with a year or two of work experience before applying for a PhD.<o:p></o:p>
The Rise of Digital Nomadism and Its Economic Implications
The Evolution of Work and the Rise of Digital Nomadism Office work has come a long way—from the rigidity of the nine-to-five office cubicle to the freedom of remote setups. The rise of cloud computing, tools like Slack and Zoom, and platforms like Upwork have enabled professionals to work from anywhere. The pandemic supercharged this shift, with 35% of US employees working remotely in 2023, up from 24% in 2019 (3). According to a 2023 study, over half the digital nomads surveyed worldwide were aged 30-39, with roughly 22% being aged under 30 (4) and working in fields like tech, software media, business and mathematical/data professions, that have embraced this lifestyle the most (5). Destinations like Lisbon, Bali, and Medellín have emerged as hotspots, offering a mix of affordability and strong infrastructure, as well as an appealing climate. Governments are also jumping on board, creating digital nomad visas to attract these workers while boosting local economies. Estonia, Croatia, and Barbados are just a few examples of countries that are making it easier than ever to work and travel. Macroeconomic Implications of Digital Nomadism Digital nomads bring foreign income into the communities they (temporarily) call home. Popular hubs like Bali and Lisbon see increased demand for co-working spaces, short-term rentals, and hospitality services. For instance, digital nomads contribute millions annually to Bali’s economy through tourism and service consumption (6). In Lisbon, thriving cafés, co-working hubs, and housing rentals cater to remote workers, reshaping local businesses. However, this boom comes with challenges. In popular hubs, living costs often rise, creating income inequality between nomads and locals. For example, in Lisbon, long-term residents have faced housing shortages as properties convert to short-term rentals for nomads and tourists. Carvalho a well-respected Professor of Economics at the University of Porto is hoping the Portuguese government can find a balance between attracting new entrepreneurs and ensuring the stability of the locals. It’s important to have an overview of the impact on Portuguese society, including ensuring local citizens aren’t priced out of their housing market (7). The strain on local infrastructure, such as transportation and utilities, also becomes an issue. Governments are responding with innovative policies, such as New Zealand easing visa rules to attract digital nomads as part of their post-COVID tourism recovery strategy (8). However, taxation remains a tricky issue, with challenges like double taxation and lost revenue for nomads’ home countries (9). Balancing the benefits and challenges of digital nomadism is a growing priority for policymakers worldwide. Microeconomic Implications for Individuals Digital nomadism presents unique microeconomic considerations for individuals, as it requires careful evaluation of budget constraints, opportunity costs, and utility maximisation. Nomads must balance the marginal benefits of travel and flexible work arrangements against expenses like accommodation, coworking spaces, and fluctuating living costs in different countries. Price elasticity is also a factor, as digital nomads adjust their spending based on income variability and local cost of living. The decision for nomads to live and work abroad is often about maximising income while minimising expenses. Relocating to low-cost destinations like Chiang Mai or Medellín can help nomads get more out of their budgets compared to living in high-cost cities like New York or London (10). For instance, a software developer earning $60,000 annually can enjoy a significantly higher quality of life in Bali, where rent and daily expenses are far lower. Additionally, the concept of consumer surplus applies, with individuals deriving varying levels of satisfaction from experiences depending on personal preferences and the perceived value of mobility and cultural exposure relative to their costs. Understanding these dynamics can help digital nomads make financially sustainable lifestyle choices while maximising their overall well-being. Broader Implications for Education and Skill Development To thrive as a digital nomad, certain skills are in high demand—both at the top for 2023 and on the rise are analytical thinking and creative thinking. Technological literacy is on the rise, perhaps because of the trend to work remotely (11). Although, yes, these skills are often looked for in ‘regular’ working environments, they enable digital nomads to thrive because of the ease and efficiency of being able to deliver remotely. Employers increasingly value professionals who can navigate remote work challenges and analyse opportunities in global markets. Analytical skills are especially in demand, which is good news for economists and data scientists, as this should be a core part of their skill sets. Online education platforms like Coursera, Udemy and DataCamp are stepping up to meet this demand. These MOOCs (Massive Open Online Courses) offer flexibility, affordability, and globally accessible skill development options. Platforms like INOMICS also collect online and on-site learning opportunities relevant to economics, data science and finance. According to Statista, the global e-learning market is projected to grow by 10% annually, reflecting the rising demand for tech-focused and skill-specific courses (12). For digital nomads, these platforms are essential tools for staying competitive in a fast-evolving global workforce. Data Science and Economic Research Opportunities Digital nomadism presents exciting opportunities for data-driven analysis. Researchers and analysts can use tools like web scraping from platforms such as Nomad List to study trends in population growth and geographic preferences. Geospatial data combined with income distribution metrics could assess the economic impacts of nomads on local economies. Predictive analytics can also uncover emerging hotspots for digital nomads by analyzing variables like cost of living, internet speed, and visa policies. A study done by the National Bureau of Economic Research serves as an example of an academic analysis of remote work using a data-science approach. Applying a similar methodology could offer valuable insights into trends and patterns surrounding digital nomadism (13). Conclusion Digital nomadism is more than just a trend—it’s a transformative shift in how work and economies function. From its roots in technological innovation to its ripple effects on local and global markets, this lifestyle is reshaping the modern workforce. As technology continues to advance, the sustainability of digital nomadism will hinge on balancing economic opportunities with policy frameworks that address its challenges. Cultural shifts and new tools are likely to make this lifestyle even more accessible. For students and young professionals in economics and data science, digital nomadism presents an exciting opportunity to shape the future of work. By analysing labour markets, designing policies, or developing predictive tools, you could play a vital role in this evolving landscape. Ready to dive deeper into the world of digital nomadism? Explore research opportunities, upskill through online courses, or analyse trends to predict its growth. The future of work is being written—why not be part of the story? Works Cited “Upwork Study Finds 22% of American Workforce Will Be Remote by 2025.” Upwork, https://www.upwork.com/press/releases/upwork-study-finds-22-of-american-workforce-will-be-remote-by-2025. “State Of Remote Work 2023.” Buffer, https://buffer.com/state-of-remote-work/2023?. Accessed 27 January 2025. Cohen, Mikaela. “The percentage of employees working remotely is dropping, but experts say it’s unlikely to reach pre-pandemic levels.” HR BREW, 2024, https://www.hr-brew.com/stories/2024/08/12/the-percentage-of-employees-working-remotely-is-dropping-but-experts-say-it-s-unlikely-to-reach-pre-pandemic-levels. “Share of digital nomads worldwide in 2023, by age.” Statista, 2023, https://www.statista.com/statistics/1298807/digital-nomads-by-age-worldwide/. “Top 5 Industries with the Most Remote and Hybrid Work.” Linkedin, 2024, https://www.linkedin.com/pulse/top-5-industries-most-remote-hybrid-work-ioptimizerealty-fbqmc/. Noviarini, Nurina, and Palupi Lindiasari Samputra. “Digital Nomad and Analysis of Regional Economic Resilience of Tourism Sector in Bali Province After Covid-19 Pandemic.” Jurnal Indonesia Sosial Teknologi. Researchgate, https://www.researchgate.net/publication/380893593_Digital_Nomad_and_Analysis_of_Regional_Economic_Resilience_of_Tourism_Sector_in_Bali_Province_After_Covid-19_Pandemic. Chamberlin, Victoria. “What Portugal got right about work-life balance.” Vox, 30 September 2024, https://www.vox.com/future-of-work/374273/portugal-remote-digital-nomad-work-life-balance Accessed 28 January 2025. “Tax policies for a new generation.” European Parliament, 2022, https://www.europarl.europa.eu/RegData/etudes/ATAG/2022/733697/EPRS_ATA(2022)733697_EN.pdf. Hausberger, Yasmin. “Learning from Multinational Enterprises: International Tax Strategies for Digital Nomads.” University Wein, Masters Thesis, https://services.phaidra.univie.ac.at/api/object/o:1787699/get. Cohen, Randolph B. “Unprecedented: Remote Work and the Strange Economy of 2023.” 2023. Harvard Business Review, https://www.hbs.edu/faculty/Pages/item.aspx?num=64685. “Future of jobs: These are the most in-demand skills in 2023 - and beyond.” The World Economic Forum, 1 May 2023, https://www.weforum.org/stories/2023/05/future-of-jobs-2023-skills/. Accessed 28 January 2025. “Market size of the global corporate e-learning industry in 2023.” Statista, 2023, https://www.statista.com/statistics/1232427/global-corporate-e-learning-market-size/#:~:text=The%20market%20size%20of%20the,billion%20U.S.%20dollars%20by%202030. Stephen Hansen, et al. “Remote Work across Jobs, Companies, and Space.” 2023. National Burea of Economic Research, https://www.nber.org/papers/w31007. “Global Labor Market Trends in Remote Work.” World Bank Group - International Development, Poverty and Sustainability, https://www.worldbank.org/ext/en/home. Accessed 28 January 2025. Cost of Living.” Numbeo, 2024, https://www.numbeo.com/cost-of-living/. “Tourism Policy 2024.” OECD Tourism Trends and Policies 2024, 2024, https://www.oecd.org/content/dam/oecd/en/publications/support-materials/2024/07/oecd-tourism-trends-and-policies-2024_17ff33a3/Tourism-Policy-Highlights-2024.pdf?. Accessed 28 January 2025.
Imagine waking up to a sunrise in Bali, working from a café in Lisbon, and closing your laptop for a hike in Medellín—all in the same year. Welcome to the life of a digital nomad. Digital nomadism is more than a lifestyle; it’s a transformative shift in how people approach work. Digital nomads are professionals who leverage technology to work remotely while travelling the globe, free from the constraints of a fixed office. This trend has gained massive momentum, driven by advances in communication tools, globalisation, and the COVID-19 pandemic, which normalised remote work across industries. The numbers back this up. According to Upwork, 36.2 million Americans will be working remotely by 2025—a staggering 87% increase from pre-pandemic levels(1). Buffer’s 2023 State of Remote Work report revealed that 91% of respondents have a positive experience with working remotely with 1% being dissatisfied and 8% feeling neutral. 98% of remote workers would recommend it to others (2). These trends show that technology and shifting work-life balance priorities are reshaping what it means to “have a job.”
Trade Balance (Trade Surplus / Trade Deficit)
The trade balance is an important macroeconomic variable: countries that trade can increase their overall welfare by consuming at a point greater than their production possibilities frontier in autarky would suggest, by making use of comparative advantages in production. Or in other words, they earn more by exporting (some of) their produce that they are relatively efficient in producing, and trading it for goods they are less efficient at producing themselves. However, trade imbalances can also pose problems for a country, such as increasing the amount of debt held by the domestic government, or making the domestic economy vulnerable to security issues or market fluctuations in other nations. Defining the trade balance The trade balance is a straightforward concept. It’s defined by the difference between exports (X) and imports (M). Exports are goods (or services) that are sold by domestic producers to foreign consumers, who pay into the domestic economy for them. Imports are foreign-produced goods and services that domestic agents purchase, sending their money abroad. The trade balance itself can be defined as NX, “net exports”, a term that appears in the equations for aggregate demand and certain approaches to calculating GDP. It should be clear to see that NX is negative when a country imports more than the country exports, which, according to the aforementioned equations, decreases economic output Y. This is because when imports are greater than exports, foreign consumers put less money into the domestic economy (to buy domestic goods) than domestic agents send outside of the domestic economy (to buy foreign goods). In other words, the economy shrinks because money is leaving it. This situation is known as a trade deficit. Conversely, if exports X are greater than imports M, NX is positive, and economic output Y is able to grow more than it would without trade. That’s because in this case, foreign investments add extra money to the domestic economy, allowing more economy-boosting savings and investment than would otherwise be possible. This situation is known as a trade surplus. How trade balance is related to economic growth Trade balance affects an economy’s capital accumulation, which is an important variable for economic growth (for example, see the Cobb-Douglas Production Function). When more capital is accumulated, the economy grows more (although this also increases the effects of depreciation and increases potential maintenance costs). When X > M there is a trade surplus, which causes a “net capital inflow”. When M < X there is a trade deficit, which causes a “net capital outflow”. In other words, a trade surplus allows an economy to accumulate capital faster than it would be able to otherwise (and vice versa for a trade deficit). Savings and the trade balance According to the savings-investment identity, savings and investment are two sides of the same economic coin. Savings fuels investment, which grows the economy. Funds entering the economy via foreign agents can be seen as additional savings entering the equation from an outside source. In the case of an open economy with NX ≠ 0, investment equals total savings by domestic and foreign agents. The equation for investment in an open economy is as follows: I = S = SD + (X – M), where I is investment, S is savings, SD is savings by domestic agents, and X – M represents net exports, which can be thought of as savings by foreign agents. When X – M is positive, there are more foreign savings flowing into the economy than domestic savings leaving it. When it is negative, domestic agents are sending more money abroad than foreigners are sending into the economy. Again consider the case of a trade surplus X > M. It’s clear from the discussion of savings and trade balances that this will cause S to rise. This means that I rises too; therefore investment is increased by a trade surplus. This conclusion is reversed in the opposite case where X < M, so investment is lowered by a trade deficit. Are trade imbalances good or bad? Surpluses and deficits affect more than just savings and investment. A trade surplus can actually reduce unemployment, as domestic industries expand to meet the demand for exports. Additionally, a trade surplus can result in a stronger currency, making imports cheaper for domestic consumers. However, while a trade surplus is often seen as a positive economic indicator, it can also indicate that a country is not consuming as much as it should domestically, suggesting an underutilization of resources. And, there are tradeoffs to consider, even from running a surplus. Export industries may actually suffer from a stronger domestic currency. That’s because a strengthening currency due to a trade surplus causes exports to be more expensive for consumers abroad, and therefore less competitive. A trade deficit arises when a country's imports exceed its exports, and notoriously may lead to an increase in the national debt. This can lead to a loss of domestic jobs and an increase in unemployment, as imported goods may be cheaper than locally produced ones. However, a trade deficit isn’t always bad, just like a surplus isn’t always good. A trade deficit can provide consumers with a wider variety of goods and services at lower prices, which in turn can help to keep inflation levels under control. And, exposing domestic industries to a higher degree of competition from foreign firms can force the former to become more efficient or innovative to survive. Further, a deficit can be the result of foreign entities clamoring to compete or invest in domestic markets, a sign that the domestic economy is seen as a strong investment. Fiscal and monetary policy implications for the trade balance The trade balance is closely interconnected with fiscal policy and monetary policy. Expansionary fiscal policies (for example, cutting taxes) can stimulate domestic demand. But, increased demand can lead to higher imports, as consumers and firms leverage their increased wealth to buy foreign goods! This can increase the trade deficit. Conversely, contractionary fiscal policies may help to reduce imports and narrow the trade deficit, but come at a cost of dampening the domestic economy. Monetary policy, which mainly involves managing interest rates and the money supply, can also influence the trade balance. For example, a higher interest rate may attract foreign investors looking to save their money, which can lead to a strengthening of the domestic currency. This can increase the trade deficit by making domestic exports more expensive, and therefore less competitive, in foreign markets. Overall, the trade balance is an incredibly interconnected macroeconomic variable that has wide-ranging implications across the economy. It can be difficult to determine if the trade balance itself is responsible for a changing economic situation, or if the myriad other related variables are culpable. The truth is that the economy is a complex and multifaceted entity. In some cases, economists may debate on whether a given surplus or deficit is good or bad for the current situation. Good to Know In the real world, the trade balance is a commonly debated topic among politicians, and it can be an important facet of international relations – for good or ill. Countries frequently engage in trade negotiations to address trade imbalances and promote fair competition, and free trade treaties are often heralded as major accomplishments. For instance, Canada, Mexico and the United States signed the North American Free Trade Agreement in 1992, taking effect in 1994. This reduced the barriers to trade (such as eliminating tariffs) among the three major North American nations, and led to a slight increase in trade among them. But, U.S. President Donald Trump – who rather (in)famously took an aggressive “America First” stance on trade issues – threatened to withdraw from NAFTA during his first term in office, complaining that it wasn’t beneficial enough for the US. Eventually, the agreement was replaced by the USMCA agreement under his administration, which includes additional provisions designed to help US industries compete more favorably against Canadian and Mexican competitors.
The “trade balance” is a term that appears often in everyday news about the economy and in politics. It refers to the amount of trade that a country conducts, and it can be in surplus, in deficit, or balanced.
Women in Economics: Influential Voices and Rising Stars
Influential Female Voices in Economics Esther Duflo A Nobel laureate and professor at MIT, Esther Duflo has revolutionised development economics with her work on poverty alleviation. Duflo’s research employs randomised control trials to identify effective interventions in areas such as health, education, and agriculture. Her insights have influenced policies around the world, proving instrumental in the design of practical solutions to poverty. Alongside her contributions, Duflo co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL), a network aimed at reducing poverty through evidence-based research. You can follow her on X or read one of her Books ‘Poor Economics’ and ‘Good Economics for Hard Times’. Read our in-depth blog about her here. Janet Yellen Currently serving as the U.S. Secretary of the Treasury, Janet Yellen has been a pivotal figure in shaping modern economic policy. With a distinguished career that includes chairing the Federal Reserve, Yellen’s expertise in labour economics and monetary policy has been critical in guiding the U.S. through economic crises. Her approach to inclusive economic growth, as well as her emphasis on reducing economic inequality, continues to impact policy decisions at the highest level of government. You can follow her on X (@SecYellen) or read about her in recent articles from Forbes and The Financial Times. Claudia Goldin Renowned for her groundbreaking work on gender economics, Claudia Goldin has explored the evolution of women’s roles in the labour market, unveiling insights into wage gaps, labour force participation, and education. As a professor at Harvard University, Goldin’s contributions provide a deeper understanding of the economic forces shaping gender disparities, and her work has become a cornerstone of labour economics and social policy. You can read about her Nobel Prize Work or read one of her many books ‘Family and Career’ and ‘Understanding the Gender Gap’. Carmen Reinhart A distinguished economist specializing in international finance and macroeconomics, Carmen Reinhart currently serves as Vice President and Chief Economist at the World Bank. Her research on financial crises and sovereign debt has been instrumental in understanding economic stability. Reinhart’s influential book, ‘This Time Is Different’, co-authored with Kenneth Rogoff, remains a vital reference for analyzing financial crises and their historical context. Follow her on Linkedin, X and Instagram or read one of her many books ‘This Time Is Different’ and ‘The Decade of Debt’ Rising Female Stars Making Waves in Economics Alice Evans Alice Evans, a lecturer at King’s College London, focuses on the sociology and economics of gender equality. Her work delves into how social norms evolve and the impact of cultural shifts on gender dynamics, particularly in developing economies. Evans has become a voice of authority on the influence of social norms on economic outcomes, making significant strides in gender economics through her research and public engagement. Follow her on YouTube, Linkedin and X, or find some of her many scholarly articles. Stefanie Stantcheva A professor at Harvard University, Stefanie Stantcheva’s research examines taxation and its effects on inequality, innovation, and education. Known for her work on social economics, Stantcheva brings an empirical approach to understanding how tax policies influence economic behaviour and social mobility. Her insights are not only shaping economic theory but also influencing policy debates on equitable taxation and welfare. Follow her on Linkedin and X or read her contributions to scholarly articles. Harvard also has her biography and research published. Ulrike Malmendier An economist at UC Berkeley, Ulrike Malmendier combines behavioural economics with corporate finance, investigating how psychological factors influence economic decision-making. Her research, including the concept of the “experience effect,” explores how past economic environments shape individuals' financial choices. Malmendier’s contributions provide a deeper understanding of economic behaviour and have practical implications for both policy design and corporate strategies. Follow her on Linkedin and X or read her contributions to scholarly articles. Victoria Vanasco An emerging scholar in finance and macroeconomics, Victoria Vanasco is an assistant professor at Stanford Graduate School of Business. Her work centres on financial intermediation, systemic risk, and information asymmetry in markets. Vanasco’s research on financial institutions’ vulnerabilities and economic stability offers valuable insights into how information shapes market behaviour, making her an important voice in economic stability and financial regulation. Follow her on Linkedin, X and Facebook. Kyla Scanlon Kyla blends traditional economic insights with modern-day storytelling through her digital platforms. With a unique ability to simplify complex economic concepts, she has gained a significant following for her accessible, creative, and often humorous approach to economic education. She is also a strong advocate for financial literacy, particularly among younger audiences, making her an influential voice in engaging the next generation of economists and data-savvy individuals. Find her on Instagram, TikTok, X and YouTube or read her newly released book ‘’In This Economy? How Money and Markets Really Work’’. Tanya Van Court A visionary entrepreneur and advocate for financial literacy, particularly among children and families. As the founder and CEO of Goalsetter, a financial education platform, she has revolutionized the way young people learn about saving, budgeting, and investing. Tanya’s mission is to close the wealth gap by equipping the next generation with the tools and knowledge needed to make informed financial decisions. Her work combines elements of behavioural economics with technology, empowering families to build healthy financial habits early on. Find her on Instagram, and Linkedin or find out more about her in this Forbes article. The Importance of Diversity in Economics The contributions of these women exemplify the importance of diverse voices in economics. They have introduced broader perspectives and new areas of inquiry that perhaps are less likely to have developed within the confines of the old-school “men’s club” mentality that typified many economics departments in the past. Gender diversity among economists enhances the relevance and applicability of economic research, bringing in varied approaches to understanding issues such as inequality, poverty, and behavioural dynamics. As the field continues to evolve, fostering inclusive spaces within academia and policy institutions remains essential, not only for advancing women economists but also for enriching economic thought for all. Encouraging Future Generations The achievements of these trailblazing women in economics inspire future generations to pursue impactful careers in the field. By highlighting their contributions, we emphasize the critical role women play in advancing research, shaping policy, and fostering a more inclusive and innovative discipline. Their work serves as a powerful reminder of the value of gender diversity in driving progress across global economies and financial systems. Check out our other blog 'Does Economics have a Problem with Women?' for an interesting insight on this topic.
Men have long dominated economics, but female economists have made remarkable contributions in recent decades. The work of female economists, together with that of their male counterparts, has redefined academic and policy landscapes and paved the way for greater inclusivity within the discipline. Women continue to bring diverse perspectives that enrich our understanding of global financial systems, economic growth, labour dynamics, and policy interventions. These women are not only changing the economic landscape but inspiring future generations to follow in their footsteps. Here are some of the voices we should all be listening to.
Program and courses With this Master's program, one of the best Law Schools in the Netherlands (THE, 2025) opens its doors to students from anywhere in the world both on campus and online. The market requires experts who have knowledge of both the economic and legal aspects of taxation. That is why the program is based on two pillars: law and economics. After graduation, all students (including students with a background in economics) will be awarded with the Master in Law in International Business Taxation (LLM). Students with a Dutch Bachelor's in Law (LLB) or pre-Master's in Law can obtain the so-called “civiel effect” after graduation from this Master's. That means you will have the right to exercise typically legal professions in the Netherlands such as notary, judge, attorney, etc. This only applies to Dutch-speaking students. With this Master's degree, you qualify for prospective membership in the Nederlandse Orde van Belastingadviseurs (NOB) and can take the NOB professional program. As member, you can work as a tax advisor in an NOB recognized firm. Spice up your curriculum and broaden your horizon by participating in the prestigious EUCOTAX Wintercourse. Be inspired by internationally-reputed lecturers and celebrated scholars in a program that is affiliated with the Fiscal Institute Tilburg, one of the largest fiscal institutes in Europe. Typical courses are: International and European Taxation Tax and Technology Transfer Pricing Career prospects International Business Tax Economics offers you outstanding career prospects. Expect to get a job soon after you graduate, finding positions in the private sector (internationally-operating companies, consulting firms) as well as in the public and non-profit sectors. Graduates work or start for example as: Analyst International Corporate Income Tax at Deloitte International Tax Consultant at Ernst & Young (EY) Transfer pricing Associate at PricewaterhouseCoopers (PwC)
Combine legal and economic knowledge to become a tax expert specialized in international business. Gain the academic skills to fully understand the impact of taxation in combination with new technologies on a global scale. Understand the function of taxes as instruments to pursue sustainable development. The LLM International Business Taxation gives you the opportunity to join the program either online or on campus.
The number of scholarships is limited and mainly targeted at students with excellent study results. Visit website for more info
The AD-AS model uses the concepts of aggregate demand and supply to build a comprehensive model of the entire economy. While imperfect (like all models!), the AD-AS depiction is a great starting point when studying macroeconomic models; it can show the effects of just about any economic factor or shock on the economy. Importantly, the model also depicts inflation and output clearly, which in turn strongly hints at the level of unemployment, three important macroeconomic variables for any model to account for. Full-employment output in the AD-AS model The basic form of the AD-AS model is shown in Figure 1. In this graph, equilibrium is at the point where the AD (aggregate demand) and SRAS (short run aggregate supply) curves intersect with both each other and the vertical LRAS (long run aggregate supply) line. This yields an equilibrium price level of P1 and output of Y1. Figure 1: The AD-AS model in long-term equilibrium When the economy is in this state, markets are in perfect harmony. We know this because when the three curves (AD, SRAS, and LRAS) intersect, the price level is steady, unemployment is as low as possible, and output (as measured by, say, GDP) is as high as is “safely” possible. At this three-way equilibrium, consumption and investment demands of consumers and businesses (AD) perfectly align with the production desires of suppliers (SRAS) at the current price level. In other words, the price level is steady because there is just enough supply to meet demand. And, because the economy is efficiently using all of its resources (equilibrium is on the LRAS curve), we know that output is maximized. Because of this, we also know that workers are being utilized effectively and there is no unemployment (save for the unavoidable and healthy natural rate of unemployment). Thus, when short-term AD-AS equilibrium rests on the LRAS curve in the AD-AS model, the economy is in a state known as “full employment output”. For deeper understanding, recall that the LRAS curve shows the maximum (healthy) potential output of the economy, and is unaffected by the price level. This is because the numeric price level doesn’t change how much real-world production factors – like raw materials, machines, and human intelligence – can actually produce. The LRAS curve, then, represents a Pareto-efficient usage of the economy’s resources. In fact, the LRAS curve can also be thought of as a point on the economy’s Production Possibilities Frontier (PPF). When the economy is efficiently using all of its resources, it will reach a production mix on the edge of the PPF, and in the AD-AS model it will be at equilibrium on the LRAS curve. Disequilibrium in the AD-AS model This situation is all well and good, but the economy isn’t always in equilibrium! Let’s examine how the AD-AS model depicts disequilibrium. First, consider a situation where the short-run equilibrium – the intersection of AD and SRAS – lies to the left of the full employment level. What does this say about the economy? Figure 2: The AD-AS model in recession This shows that aggregate demand and short-run aggregate supply are in equilibrium, but they are not at the full-employment level of output depicted by LRAS. Since LRAS shows where equilibrium should be if the economy is utilizing its resources effectively, this economy isn’t producing output to its full potential – it’s producing at a point somewhere under the PPF curve. It’s possible that the price level is too high, that there is too much unemployment, or that some negative shock occurred that made the economy less productive. In other words, Figure 2 is showing a recession! In this specific case, notice how the AD curve has shifted to the left, and the new levels of prices and output are both less than in Figure 1. Figure 3 examines the opposite case – where the short-run equilibrium is to the right of LRAS. Figure 3: The AD-AS model in an inflationary expansion Now, AD and SRAS are at an equilibrium output greater than the full employment output. This is, in fact, possible. However, this isn’t some cheat code that heralds infinite economic growth; as with everything in economics and in life, there are no free lunches. This inefficient overuse of resources comes with a serious cost: inflation! Notice how, compared to Figure 1, the AD curve has shifted to the right, leaving us with higher output and a higher price level. The economy could be over-producing for several reasons, but in any case, free markets will eventually correct themselves. They will respond to the excess production by raising prices or reducing output, such that the new intersection of AD and SRAS returns to the LRAS curve. One way this can come about is via an adjustment in the wage rate. Workers, noticing the increased productivity, will seek increased compensation. This upward pressure on the wage rate will eventually increase prices across the economy, as firms face higher labor costs, and by extension higher production costs. In this case SRAS shifts to the left, until it intersects AD at the point where both curves meet LRAS. The end result of the brief period of over-productivity, then, is the same long-run output as before, but at a higher price level. This is just one way that inflation can occur as a result of Figure 3’s over-production. Regardless of the exact reasons, economists describe this state of the economy as an “inflationary expansion”. That term – along with the terms “recession” and “full employment output” – define each basic state that the AD-AS model can be in, and tell us the position of the curves and likely state of the economy even without needing to see a graph. Dynamics of the AD-AS model Showing the state of the economy is helpful, but the true usefulness of the AD-AS model is that it can depict how the economy might shift into and out of equilibrium. In other words, it’s a tool that helps economists anticipate how real-world events will affect the economy, and why. When examining the AD-AS model for these purposes, it’s important to remember the factors that can shift either the aggregate demand or aggregate supply curves. In Figures 1, 2 and 3, the AD curve shifted, but in the real world either AD, SRAS, LRAS, or even two or three of the curves can shift! To recap, the equation for aggregate demand shows which factors can shift it: AD = C + I + G + NX (Where C represents consumption spending by individuals and firms, I is investment spending, G shows government spending, and NX represents net exports.) If anything occurs that shifts one of its components, aggregate demand will shift. A full discussion can be found in the linked article. Likewise, aggregate supply can shift too, and the linked article discusses how. The most common causes of a shift in aggregate supply include changes in the prices or availability of factor inputs, or changes in economic policy that make it easier (or harder) for firms to conduct business. Long-run aggregate supply can also shift. When it does, it signifies a change in the economy’s total potential output. Innovation is a major factor that can shift LRAS to the right; destructive events like warfare or natural disasters can shift it to the left. When any curve shifts, we can determine the likely effects on the economy using the graphs depicted in the last section. For example, suppose that a negative supply shock – such as an increase in the price of oil – hits the economy. This would cause SRAS to shift leftwards, as the cost of inputs is a major factor that can affect the supply of goods (LRAS does not shift in this case, since prices don’t affect long-run potential output). The leftward shift in SRAS corresponds to a movement left and up along the AD curve, bringing the economy to a new short-run equilibrium with lower output and higher prices – see Figure 4 below. Figure 4: Recession caused by a negative shock to SRAS But, in the long run, the economy will recover from the increased price of oil and return to its long-run efficient level of production. This can happen in many ways. In this example, it’s possible that the increased cost of oil incentivizes consumers and firms to find energy and input substitutes that don’t rely on oil. Suppose producers began to rely on solar power instead; eventually then, SRAS would return to the fully efficient level once firms had enough time to fully account for the increased cost of oil. Multiple curves can shift at the same time, too. Consider a case where innovation in a domestic economy produces a major technological breakthrough – for example, suppose that one country alone invents desktop computers. This would improve economic productivity, shifting LRAS to the right; it would also (most likely) lead to a surge in foreign demand for domestically-produced computers, before other countries are able to begin producing their own supply. This increase in the NX term of aggregate demand shifts AD to the right as well. The final equilibrium is likely to be a scenario where the economy has both higher output and a higher price level, since LRAS and AD both shifted rightwards (representing a movement upward along the SRAS curve). In these scenarios, the effect on the price level is clear. The likely effects on employment are easy to deduce from this model, too, although employment doesn’t appear explicitly on the graph. Consider the case just discussed, where LRAS and AD shifted rightwards. In response to the increased demand, firms would need to hire more workers and increase their capital stock, to increase production. Therefore, unemployment would most likely decrease. AD-AS and the effects of policy The articles on monetary and fiscal policy discuss the goals of the central bank and government when implementing policy. Generally, these institutions seek to boost the economy during times of recession, and slow the economy during times of (potentially inflationary) expansion. It may seem odd at first to learn that these institutions might actually want to reduce or discourage economic activity. But, the AD-AS model immediately shows us when this can make sense. If the economy is in an inflationary expansion (like in Figure 3), it might be necessary to shift AD to the left so that the price level doesn’t increase too much. After all, runaway inflation can lead to difficult situations like stagflation or hyperinflation, especially if unforeseen events shift SRAS or LRAS to the left. In order to affect the economy, the government can affect G (government spending) directly through fiscal policy. And, implementing laws and regulations can guide the economy in various ways, too. For example, if the economy is in a recession (like in Figure 2), cutting corporate taxes can shift SRAS to the right and encourage the economy to return to an equilibrium closer to the full-employment output level. Monetary policy affects the AD-AS model too. To see how, first realize that the money supply can affect aggregate demand. If the central bank increases the supply of money, AD will shift rightwards (since consumers have more money to spend; or, alternatively, the velocity of circulation increases). This causes the short-run equilibrium to reach an increased level of output and prices (assuming that monetary neutrality does not hold). In times of recession, this is a policy lever that may seem quite appealing to bring short-run equilibrium back towards LRAS. Depending on the country, the central bank also influences interest rates, which have important effects on the AD-AS model. Increasing interest rates encourages saving and discourages both consumption spending and (firms) borrowing to fund investment projects, which can shift AD leftward, and vice versa (nevertheless, the savings-investment identity continues to hold as the economy shifts). Further Reading The AD-AS model isn’t perfect, but it is a great starting point. Grasping this model will allow students to ace introductory macroeconomics courses, and build off of it to learn more complex models of the economy. For an advanced discussion of the AD-AS model’s shortcomings, numerous papers are available. Consider, for example, David Colander’s The Stories We Tell: A Reconsideration of AS/AD Analysis. Yet, the model is still widely used in economics today because it is useful, relatively straightforward, and robust. See Amitava Krishna Dutt and Peter Skott’s Chapter 6 Keynesian Theory and the AD–AS Framework: A Reconsideration for an example of argumentation in favor of its continued use.
There are a wide variety of macroeconomic models that aim to represent how economic activity works, and economics students will encounter many throughout the course of their studies. Arguably, the most common and important of these is the aggregate demand-aggregate supply model, or AD-AS model. Needless to say, you should be familiar with both aggregate supply and aggregate demand before continuing to read this article!