Macroeconomic theory in the aftermath of the crisis: mainstream and new Keynesianism [Macroeconomic theory in the aftermath of the crisis: mainstream and new Keynesianism]

Italo Pedrosa and Maryse Farhi
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Maryse Farhi: UNICAMP

Nova Economia, 2015, vol. 25, issue 2, 237-260

Abstract: The failure of mainstream macroeconomics to provide a suitable set of instruments to understand and fight against the economic crisis has triggered a debate among the dominant theoretical tendency, on its own foundations and on the macroeconomic policy that should be implemented after the crisis. The aim of this paper is to investigate to what extent the crisis affected mainstream macroeconomic theory and policy guidelines. We argue that new Keynesians did not pass unharmed by the crisis, themselvesacknowledging the need to adapt their models through the incorporation of new variables and ideas. The main change is the recognition of the non-neutrality of the financial system, which calls into question monetary policy guided by one instrument, the short-term interest rate, and by one target, the inflation rate, which would be insufficient to simultaneously lead to a stable and near potential output growth whilemaintainingthe stability of the financial system.

Keywords: New Keynesians; Macroeconomic Theory; Mainstream; Macroeconomic Policy; New Consensus Macroeconomics (search for similar items in EconPapers)
JEL-codes: B22 E60 E61 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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