The Relevance of Haavelmo’s Macroeconomic Theorizing for Contemporary Policy Making

Sheetal Chand

No 06/2012, Memorandum from Oslo University, Department of Economics

Abstract: The recent great financial crisis and the ensuing deep recessions have placed in sharp relief the fundamental issue of how financial factors, including financial instability, interact with the real economy. In order to understand the nature of these interactions and formulate policies that would help contain adverse outcomes it is essential to have an adequate conceptual framework. Unfortunately, the standard DSGE approach is deficient in this regard. This paper contends that Haavelmo’s macroeconomic theorizing provides a better starting point for forging the required integration between the financial and real sectors. The paper extends the basic Haavelmo model to the contemporary scene and uses it to shed light on policy solutions to the current predicament.

Keywords: financial crisis; investment; monetary and fiscal policies (search for similar items in EconPapers)
JEL-codes: E22 E44 E52 E63 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012-02-27
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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