 The failure of the new macroeconomic consensus: from non-ergodicity to the efficient markets hypothesis and back againNigel F.B. Allington, John McCombie and Maureen Pike International Journal of Public Policy, 2011, vol. 7, issue 1/2/3, 4-21 Abstract: The subprime crisis raised some fundamental questions about the usefulness of mainstream economics. This paper considers the shortcomings of the new neoclassical synthesis and the new macroeconomic consensus in analysing the causes and consequences of the crisis. It demonstrates that the major problem was the assumption that the future could be modelled in terms of Knightian risk (as in the rational expectations and efficient markets hypotheses). It is shown that the near collapse of the banking system in the advanced countries was due to a rapid increase in uncertainty. Suggestions are made for the future development of financial macroeconomics using the insights from behavioural economics. Keywords: subprime mortgages; financial crises; financial macroeconomics; consensuses; new consensus; ergodicity; uncertainty; behavioural economics; USA; United States; efficient markets; mainstream economics; neoclassical synthesis; Knightian risk; rational expectations; Frank Knight; banking systems; banks; advanced countries; public policy; economic policies; alternative paradigms. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijpubp:v:7:y:2011:i:1/2/3:p:4-21 Access Statistics for this article More articles in International Journal of Public Policy from Inderscience Enterprises Ltd |
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