The Controversies of Modern Macroeconomic Theory in the Context of the Global Economic Crisis

Jovan Djuraskovic (), Milivoje Radovic () and Milena Radonjic Konatar ()
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Jovan Djuraskovic: Faculty of Economics University of Montenegro, Podgorica, Montenegro
Milivoje Radovic: Faculty of Economics University of Montenegro, Podgorica, Montenegro
Milena Radonjic Konatar: Faculty of Economics University of Montenegro, Podgorica, Montenegro

Journal of Central Banking Theory and Practice, 2018, vol. 7, issue 2, 49-72

Abstract: The aim of this paper is to analyze controversies of modern macroeconomic theories in the period of the global economic crisis. Ideas, disagreement and similarities between the most important theories in relation to state intervention and anti-crisis economic policy are presented. The topical research has found a connection between the roots of the global economic crisis and the paradigm of new liberal theories. The crisis has confirmed that the idea of self-regulation in the private sector is untenable in practice. In times of crisis, the leading theoretical framework in economic policy is re-examined. Rules-based monetary and fiscal policies are replaced by discretionary decision-making. In the world economies affected by the crisis, anti-Keynesian cyclical measures of monetary and fiscal policies were implemented. A comprehensive and unequivocal reaffirmation of Keynesianism in anti-crisis policies has confirmed the assumption of the circularity of economic theories. Central banks quickly reduced their key interest rates and increased their money supply. Fiscal authorities implemented expansive stimulus programs. When creating a new macroeconomic paradigm, market imperfection must be taken into account as well as a limited range of government economic policies.

Keywords: economic crisis; economic theory; monetary policy; fiscal policy (search for similar items in EconPapers)
JEL-codes: B22 E32 E52 E62 (search for similar items in EconPapers)
Date: 2018
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