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Clothes for the Emperor or Can Graduate Schools Learn From Undergraduate Macroeconomics?

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  • Manfred Gärtner

    ()

  • Florian Jung

    ()

Abstract

The current crisis is not only one of financial markets, but also of macroeconomics. Leading scholars call for a paradigm shift away from dynamic general equilibrium models, though some argue that the profession's arsenal already contains the tools and historical lessons needed to deal with such crises. Taking this view to the limit, this note demonstrates that the workhorse models of undergraduate macroeconomics not only permit a refined view and classification of financial crises. These models also identify scenarios under which either policymakers would be ill advised to follow conventional prescriptions, or full-scale depressions loom that cannot be fought by means of fiscal or monetary policy alone.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2010/DP-1019-Ga.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-19.

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Length: 17 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:usg:dp2010:2010-19

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Keywords: Teaching macroeconomics; lessons; graduate; undergraduate; financial crisis; liquidity trap; risk premium;

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  1. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
  2. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
  3. Joseph E Stiglitz, 2009. "The Current Economic Crisis and Lessons for Economic Theory," Eastern Economic Journal, Palgrave Macmillan, vol. 35(3), pages 281-296.
  4. Manfred Gärtner & Florian Jung, 2009. "The macroeconomics of financial crises: How risk premiums, liquidity traps and perfect traps affect policy options," University of St. Gallen Department of Economics working paper series 2009 2009-15, Department of Economics, University of St. Gallen.
  5. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
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