Macroeconomic trouble and policy challenges in the wake of the financial bust
AbstractContrasting with the 1929 great crisis, authorities intervened forcefully in 2008 to stop the disintegration of the financial system. Governments and central banks then sought to revise the prudential regulation in depth. It would be optimistic, however, to believe that prudential measures, alone, could deliver full economic recovery, for the collapse of the 'state of confidence' has fed depressive forces and policy challenges which could hold for a while, even once the financial sector is made safe. On the one hand, the economic slowdown and the direct and indirect assistance provided by the governments to the private sectors are having a heavy impact on public finances, meanwhile, on the other hand, the massive amounts of money which artificially inflated the prices of housing and financial products could produce inflationary pressures in the post-crisis period, unless a new assets bubble is allowed for. Authorities could therefore be facing high unemployment in a damaged context of public deficits and inflationary pressures. The paper aims at discussing these new challenges. The inadequacy of inflation targets and fiscal orthodoxy in a depressed economy is emphasized, and the outlines of a Post Keynesian alternative policy are examined.
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Date of creation: May 2010
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alternative macroeconomic policy; monetary policy; fiscal policy; economic crisis; public debt; inflationary pressures;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-FDG-2010-07-10 (Financial Development & Growth)
- NEP-MAC-2010-07-10 (Macroeconomics)
- NEP-REG-2010-07-10 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Geoff Tily, 2006. "Keynes's theory of liquidity preference and his debt management and monetary policies," Cambridge Journal of Economics, Oxford University Press, vol. 30(5), pages 657-670, September.
- Paul Davidson, 2008. "Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? or is it the result of attempting to securitize illiquid noncommercial mortgage loans?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(4), pages 669-676, July.
- Palley, Thomas I., 2009. "America's exhausted paradigm: Macroeconomic causes of the financial crisis and great recession," IPE Working Papers 02/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
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