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Macroeconomics: Institutions, Instability, and the Financial System

Wendy Carlin and David Soskice

20 November 2014

ISBN: 9780199655793

680 pages

In Stock

Price: £67.99

Carlin and Soskice integrate the financial system with a model of the macro-economy. In doing this, they take account of the gaps in the mainstream model exposed by the financial crisis and the Eurozone crisis. This equips the reader with a realistic modelling framework to analyse the economy both in crisis times and in periods of stability.



Carlin and Soskice integrate the financial system with a model of the macro-economy. In doing this, they take account of the gaps in the mainstream model exposed by the financial crisis and the Eurozone crisis. This equips the reader with a realistic modelling framework to analyse the economy both in crisis times and in periods of stability.

  • The only textbook to comprehensively integrate the financial system within the mainstream macroeconomic model.
  • Experienced and well-respected authors provide a clear analysis of the causes and consequences of the global financial crisis and the role played by the interaction of financial institutions and the macro-economy.
  • Innovative chapter structure ensures students understand the overarching narrative of key arguments, before tackling the technical modelling sections.
  • Checklist questions and discussion questions at the end of every chapter develop problem-solving skills and test understanding.
  • An Excel-based simulator hosted online enables students to conduct a range of exercises with the closed and open economy versions of the model.
  • Also available as an e-book with functionality, navigation features, and links that offer extra learning support

About the Author(s)

Wendy Carlin, Professor of Economics, University College London, and David Soskice, School Professor of Political Science and Economics , The London School of Economics and Political Science

Wendy Carlin is Professor of Economics at University College London and Research Fellow of the Centre for Economic Policy Research. David Soskice, FBA, is School Professor of Political Science and Economics at The London School of Economics and Political Science.

Table of Contents

    1:The demand side
    2:The supply side
    3:The 3-equation model and macroeconomic policy
    5:Money, banking and the macro-economy
    6:The financial sector and crises
    7:The global financial crisis: applying the models
    8:Growth, fluctuations and innovation
    9:The 3-equation model in the open economy
    10:The open economy: the demand and supply sides
    11:Extending the open economy model: oil shocks and imbalances
    12:The Eurozone
    13:Monetary policy
    14:Fiscal policy
    15:Supply-side policy, institutions and unemployment
    16:Real Business Cycle and New Keynesian models


This new book is almost enough to make me wish I was still teaching Macroeconomics. It gives finance the position in macro that recent events suggest it deserves - Simon Wren-Lewis professor at Oxford University and a Fellow of Merton College.

Carlin and Soskice have produced a gem of a book. The teaching of macroeconomics after the crisis has changed surprisingly little, limiting itself to incorporating 'frictions' into otherwise standard models that failed during the crisis. Carlin and Soskice embark on a much more ambitious venture. They show how the financial cycle and macroeconomics are inextricably linked, with the risk-taking channel as the linchpin. Their exposition is refreshingly original and yet lucid and accessible. This book will appeal to serious students of economics and to all inquiring minds who have wondered about the role of the financial cycle in macroeconomics. - Hyun Song Shin, Economic Adviser and Head of Research, Bank for International Settlements and Hughes-Rogers Professor of Economics, Princeton University

This is, I believe, the first macro-economic textbook effectively to incorporate the lessons of the Great Financial Crisis and to describe how financial frictions can impact the macro-economy. The authors weave together the old mainstream, three equation, model with the newer account of potential financial disturbances in a lucid and efficient manner. As such, it has a major advantage over almost all other extant textbooks, and will be a boon not only for undergraduates, but also for graduates and those wishing to understand the current working of our macro-economic system, beset as it has been with financial strains. - Professor Charles Goodhart, Director of the Financial Regulation Research Programme, The London School of Economics and Political Science

This illuminating book introduces the reader to macroeconomics in a revolutionary fashion. Namely, by means of very elegant and accessible models that are always based on sound microfoundations and developed against a narrative of the performance and policy regimes of the advanced economies over the post war period. Unlike most other macro textbooks, this book builds on the most recent research and debates to teach macroeconomics the way it should now be taught: by emphasizing the interplay between macro and finance; by linking growth to innovation, market structure and firm dynamics; and more generally by taking institutions seriously into account when looking at growth, business cycles, and unemployment and the interplay between them. This book is an absolute must read for students and policy makers, even those with little initial background, who need to be fully acquainted with modern macroeconomics. - Philippe Aghion, Robert C. Waggoner Professor of Economics, Harvard

This is an exciting new textbook. It offers a clear and cogent framework for understanding not only the traditional macroeconomic issues of business cycles, inflation and growth, but also the financial crisis and ensuing Great Recession that have recently shaken the world economy. The paradigm it offers is highly accessible to undergraduates. Yet at the same time it is consistent with what goes on at the frontiers of the field. Overall, the book confirms my belief that macroeconomics is alive and well! - Mark Gertler, Henry and Lucy Moses Professor of Economics, New York University

To be relevant, economics need to help society understand those phenomena which do it greatest harm - unemployment, inflation and deflation, financial instability, fiscal and banking crisis. Pre-crisis, mainstream economic models failed that societal test and therefore failed society. Wendy Carlin and David Soskice's important new book is the first step towards redemption, providing students and scholars with a rigorous but accessible framework for understanding what troubles society most. - Andrew G Haldane, Chief Economist, Bank of England

The Carlin and Soskice book does a wonderful job of covering the economics behind macroeconomics and the financial system, alongside presenting the latest research on this and the drivers of the great recession. It also has an impressive array of data and examples woven in with theory explained in a beautifully intuitive way. For any student interested in a refreshingly modern take on the financial crisis and the economics that underlie this, this book is invaluable. - Nicholas Bloom, Professor of Economics, Stanford University

One of the first macro textbooks to integrate the lessons of the crisis. An elegant bridge between introductory undergraduate and graduate macro texts - Olivier Blanchard, Chief Economist, IMF, and Professor of Economics, MIT

In the light of the events of the past decade, it is important that a new macroeconomics text attempts to satisfy the demands of those learning and using macroeconomics to be able to access relatively simple models which reflect the ways in which the financial sector interacts with the real economy. This is by no means an easy task. The new Carlin and Soskice book represents a significant step forward in this regard. Consequently undergraduates, post-graduates and their teachers should be grateful that they can now access teaching materials which have something useful to say about the financial crisis. - Professor Stephen Nickell, CBE, FBA. Honorary Fellow of Nuffield College, Oxford

Additional Resources

Online Resource Centre _

For students:
Conduct a range of exercises with the closed and open economy versions of the model using the Excel-based macroeconomic simulator.

Develop your understanding with additional technical material available in the accompanying web appendices.

For registered lecturers:
Access the solutions to end of chapter questions from the book.