Toward a new microfounded macroeconomics in the wake of the crisis

Eugenio Caverzasi and Alberto Russo

Industrial and Corporate Change, 2018, vol. 27, issue 6, 999-1014

Abstract: The Great Recession that followed the financial crisis of 2007 is not only the largest economic crisis after the Great Depression of the 1930s, it also signals a crisis of economics as a discipline. This is not only the consequence of the inadequacy of mainstream macroeconomics, and specifically the Dynamic Stochastic General Equilibrium (DSGE) workhorse model, to forecast such a huge event, or at least to detect the worrying tendencies towards it. Even more relevant is the choice to explicitly avoid the modeling of large crises (that for someone is a motivation for not attacking pre-crisis DSGE models focused on the analysis of small deviations from the steady-state), so denying the intrinsic nature of capitalism, a system that necessarily proceeds through cycles and (extended) crises. The replies of the DSGE approach to critics have led to extensions regarding for instance the role of financial frictions, heterogeneous agents, and bounded rationality (though typically in the form of quasi-rational expectations). The alternative paradigm of agent-based (AB) macroeconomics can take into account all these elements at once within an evolutionary modeling framework based on heterogeneity and interaction, so capable to endogenously reproduce complex dynamics, from small fluctuations to large crises, due to innovation and industrial dynamics, rising inequality and financial instability, and so on. The integration between AB macroeconomics and the (post-Keynesian) stock–flow consistent approach represents a promising way for the future development of this research field.

JEL-codes: B16 B4 B5 C6 E12 E44 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1093/icc/dty043 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Toward a new microfounded macroeconomics in the wake of the crisis (2018)
Working Paper: Toward a New Microfounded Macroeconomics in the Wake of the Crisis (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:indcch:v:27:y:2018:i:6:p:999-1014.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Industrial and Corporate Change is currently edited by Josef Chytry

More articles in Industrial and Corporate Change from Oxford University Press and the Associazione ICC Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().