How to Fight (or Not to Fight) a Slowdown

Eckhard Hein and Achim Truger

Challenge, 2009, vol. 52, issue 3, 52-75

Abstract: The current global recession, along with the credit crisis, requires that the prevailing economic model be seriously debated and, these economists contend, reformed. The authors criticize the mainstream New Consensus approach in macroeconomics for its reliance on stabilization by means of monetary policies, its ill-designed approach to the role of wages and wage policies, and its complete neglect of fiscal policies. Instead, they argue that for macroeconomic stabilization the whole macroeconomic policy mix of monetary, fiscal, and wage policies, as well as open economy conditions, has to be considered. Based on this view, they analyze macroeconomic performance and macroeconomic policies in France, Germany, Sweden, and the UK between 1996 and 2005. They show that the widely differing success with respect to the degree of recovery after the 2000-2001 slowdown can be explained very plausibly by differences in the macroeconomic policy mix. However, there are important drawbacks in each case.

Date: 2009
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DOI: 10.2753/0577-5132520303

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