Whither New Consensus Macroeconomics? The Role of Government and Fiscal Policy in Modern Macroeconomics

Giuseppe Fontana

Economics Working Paper Archive from Levy Economics Institute

Abstract: In the face of the dramatic economic events of recent months and the inability of academics and policymakers to prevent them, the New Consensus Macroeconomics (NCM) model has been the subject of several criticisms. This paper considers one of the main criticisms lodged against the NCM model, namely, the absence of any essential role for the government and fiscal policy. Given the size of the public sector and the increasing role of fiscal policy in modern economies, this simplifying assumption of the NCM model is difficult to defend. This paper maintains that conventional arguments used to support this controversial assumption--including historical reasons, theoretical propositions, and practical issues--do not have solid foundations. There is, in fact, nothing inherently monetary in the stabilization policies found in the model. Thus, fiscal policy could play a role at least as important as monetary policy in the NCM model.

Date: 2009-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_563

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