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Institutions, Instability, and the Financial System

Wendy Carlin and David Soskice

Publication Date - December 2014

ISBN: 9780199655793

672 pages
9.7 x 7.4 inches

Essential reading for students interested in learning more about the current macroeconomic system and the role of financial institutions


Macroeconomics: Institutions, Instability, and the Financial System integrates the modern monetary framework--based on the 3-equation model of the demand side, the supply side, and the policy maker--with a model of the financial system. The authors comprehensively address the limitations of the mainstream macroeconomic model exposed by the financial crisis and the Eurozone crisis. The text guides the reader through the three principal steps required to integrate the financial system within the macroeconomic model.

Every chapter emphasizes how the different actors in the economy behave and interact: what are they trying to achieve and what limits their ability to put their intentions into practice? This is extended to the modelling of growth, where the role of innovation rents in the Schumpeterian model is highlighted. It is essential that students understand previous periods of growth, stability and crisis in preparing for future shocks. With this in mind, the book enables the reader to interpret long run historical data and to compare institutional detail in different eras and across the world.

Macroeconomics not only develops the critical thinking skills required for academic success, but ensures that students can analyze data, trends, and policy debates with the confidence necessary for a career in economics or finance. It is essential reading for all those interested in learning more about the current macroeconomic system and the role of financial institutions.


  • 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

About the Author(s)

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
    4. Expectations
    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

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