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How to Explain the Persistence of the Great Recession? A Balanced Stability Approach

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  • Teodoro Dario Togati

    ()
    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

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    Abstract

    The Great Recession (GR) brings about a stalemate in macroeconomics. On the one hand, while describing the immediate effects of the GR, standard models fail to account for its persistence. On the other, heterodox approaches do not regain consensus as they fail to devise an alternative method for capturing the deep causes of the GR that account for its persistence in a systematic way. This paper fills this gap by proposing a new framework called Balanced Stability Approach. Unlike standard macro which takes stability for granted, it provides a balanced assessment of stability, considering both threats and opportunities for phenomena such as the so-called New Economy (NE) on a par. On these grounds, the paper draws the conclusion that the persistence of the GR is due to a low level of aggregate demand rooted in the structural changes generated by the NE.

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    File URL: http://eco83.econ.unito.it/RePEc/wp/m14.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino in its series Working papers with number 014.

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    Length: 25 pages
    Date of creation: Oct 2012
    Date of revision:
    Handle: RePEc:tur:wpapnw:014

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    Related research

    Keywords: Economic Crisis; Stability; Deductivist Methods; Macroeconomics; Keynesianism;

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    1. Robert E. Hall, 2010. "Why Does the Economy Fall to Pieces after a Financial Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 3-20, Fall.
    2. Teodoro Dario Togati, 2001. "Keynes as the Einstein of Economic Theory," History of Political Economy, Duke University Press, vol. 33(1), pages 117-138, Spring.
    3. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
    4. Ricardo J. Caballero, 2010. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 85-102, Fall.
    5. Sheila C. Dow, 2011. "Cognition, market sentiment and financial instability," Cambridge Journal of Economics, Oxford University Press, vol. 35(2), pages 233-249.
    6. anonymous, 2010. "Interview with Thomas Sargent," The Region, Federal Reserve Bank of Minneapolis, issue Sep, pages 26-39.
    7. Tony Lawson, 2012. "Ontology and the study of social reality: emergence, organisation, community, power, social relations, corporations, artefacts and money," Cambridge Journal of Economics, Oxford University Press, vol. 36(2), pages 345-385.
    8. Tony Lawson, 2009. "The current economic crisis: its nature and the course of academic economics," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 759-777, July.
    9. Carlota Perez, 2009. "The double bubble at the turn of the century: technological roots and structural implications," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 779-805, July.
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