How can we explain the persistence of the Great Recession? A balanced stability approach

Teodoro Dario Togati

Cambridge Journal of Economics, 2016, vol. 40, issue 4, 1077-1101

Abstract: The Great Recession (GR) creates a stalemate in macroeconomics. On the one hand, standard approaches fail to account for its persistence in a credible way due to their implicit assumption that the economy is internally stable. On the other, heterodox approaches fail to regain consensus. While often correctly stressing that the roots of the GR lie not only in developments within the financial sector but also in a lack of aggregate demand, they fail to devise an alternative method for showing why this problem has arisen in a systematic way. This paper fills the gap by proposing a new framework called the ‘balanced stability approach’. Its specific contribution is to stress that the low demand problem is rooted in a wide range of structural changes which arise in the so-called ‘new economy’.

Date: 2016
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