Did economic theory cause the Great Financial Crisis? In answering this question, Lavoie, presents a comprehensive summary of the views put forth by mainstream and heterodox economists: why old theories like hysteresis have made a come back? Should we dispense with DSGE models and NAIRU? Can aggregate demand be upward sloping? Lavoie, a post-Keynesian, concludes this essay by suggesting what “ought to disappear and what might disappear from macroeconomic theory.”
Rethinking Macroeconomic Theory Before the Next Crisis
Author: Marc Lavoie
From: University of Ottawa
Dullien evaluates the way DSGE models have changed since the Great Financial Crisis. He lists the three important modifications which have been made: a) the introduction of the rule-of-thumb consumers as a way of making fiscal policy relevant; b) the modification of labor market modelling to account for involuntary unemployment; and c) the inclusion of the financial sector. Dullien finds that although these changes have improved the empirical fit of the DSGE models their underlying structure remains problematic.
How much progress has the mainstream made? Evaluating modern DSGE models from a Post-Keynesian perspective
Author: Sebastian Dullien
From: HTW Berlin
It was in 1955, argues Farmer, that Post-Keynesians stopped “interbreeding with their orthodox cousins.” That was when Paul Samuelson introduced the neo-classical synthesis according to which the economy is Keynesian in the short-run, when prices and wages are sticky, and classical in the long-run when they have time to converge to their Walrasian levels. Farmer in this paper introduces his “Post-Keynesian Dynamic Stochastic General Equilibrium Theory” as another way that could bring unity between Post Keynesian and mainstream macroeconomic theories.
Post Keynesian Dynamic Stochastic General Equilibrium Theory
Author: Roger E. A. Farmer
From:UCLA
