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AbstractDeep recessions and disruptions in credit markets have caused social concern and motivated research for a long time. They still challenge macroeconomic analysis. We map some observable features of a set of such episodes, trying to find common elements of the whole family of events. The different macroeconomic experiences show a high degree of heterogeneity. Given that, what emerges as a central element of crises is their character as a life-changing episode for the people concerned, which remains in their memory and triggers a search for lessons, as they frustrate past expectations and force widespread reevaluations of wealth and income prospects. Critical periods involve dynamics at different time scales, as economic changes with lasting implications take place in an environment of dramatic day-to-day variability. Crises tend to be associated with breaks in the growth trends of the economies in question, in a way that may surprise not only agents inclined to eccentric behavior, but also those who held beliefs based on prevalent economic analysis. Macroeconomic disturbances of this sort raise strong questions about the pertinence, and the logic, of usual rational expectations assumptions and modeling practices. These issues are briefly discussed in an opening section.

"Expected outcomes offer no new information. Results that are unexpected challenge orthodox views. While most discrepancies are resolved upon detailed examination, the few that remain have the potential to lead to a new understanding of human behavior. Over the past four decades, I have held a unique position that has allowed me to directly observe how people form and act on their economic expectations as the director of the University of Michigan's consumer sentiment surveys. I initially resisted the startling implications of my observations as they were in inconsistent with accepted theories in economics and psychology"--

Since April 1985 the operations of the entire financial sector
in Pakistan have been transformed into a system which is expected to
conform to the laws of 1slamic society. Under this system all banks and
other financial institutions are supposed to conduct their borrowing and
lending according to an interest free Islamic financial system, except
for past commitments which may have been carried over in accordance with
original commitments! With this rapid transition towards the interest
free banking system in Pakistan, the present decade has witnessed the
emergence of the State Bank of Pakistan as a key participant in the area
of policy formation. Indeed, the greater participation of the governor
and the bank has given rise to a considerable amount of discussion and
debate over Pakistan's monetary policy among the academics and
politicians at home and abroad. To a large extent, this discussion and
analysis has been essentially descriptive, being based upon casual
observations rather than tightly formulated econometric models. From the
viewpoint of understanding Pakistan's economy over the 1970s and 1980s
within the framework of a complete macro model, there is a growing need
to empirically establish the mechanisms of monetary policy in Pakistan
and to determine its impact on such macro-economic variables as real
output and employment.

This paper discusses various challenges in the specification and implementation of "macro-finance" models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models ("internal basis models") and models which have observed macroeconomic variables as state variables ("external basis models"), and examine the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro variables and their potentially adverse effect on the specification of external basis models. I also discuss the challenge of addressing features like structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro-finance models are also discussed in detail

This book provides a comprehensive account of the theoretical structures, database, computation and application of ORANI-INT. ORANI-INT is a multi-period elaboration of ORANI, a well-known computable general equilibrium model of the Australian economy. The implications of assuming that expectations are model consistent are contrasted with those of the alternative assumption that expectations are static. A generic algorithm for solving a wide range of economic models is described in detail. The algorithm is portable because it is implemented in GEMPACK, a commercially available software package. The major application reported in the book addresses the issue whether tariff reform policies should be announced ahead of their implementation. Many of the multisectoral models used throughout the world are static. The methodology presented in the book demonstrates that such models can be easily embedded into an intertemporal framework