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Economy and economics: the twin crises

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  • Alessandro Vercelli

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    Abstract

    This paper explores the interaction between the Great recession triggered by the US subprime mortgages crisis and the twin crisis of macroeconomics. We argue that a major determinant of the subprime crisis and its dire consequences has been an approach to economics that is unable to deal with irregular phenomena. On the other hand, the unexpectedly deep financial crisis that has heavily affected the real economy makes clear that we need a major redirection of macroeconomic theory to make it able to explain, forecast and control irregular phenomena. The recent interaction between the crisis of the economy and the crisis of macroeconomics is analyzed in the light of similar preceding episodes in the 20th century: the Great contraction of the 1930s and the Great stagflation of the 1970s.

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    Bibliographic Info

    Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 0410.

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    Date of creation: Jun 2010
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    Handle: RePEc:usi:depfid:0410

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    Related research

    Keywords: subprime crisis; Great recession; Great stagflation; Great contraction; Great depression; liberalism; laissez-faire; Keynesism; neoliberalism; new classical economics; theory and facts; scientific revolutions.;

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
    2. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
    3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    4. Laidler,David, 1999. "Fabricating the Keynesian Revolution," Cambridge Books, Cambridge University Press, number 9780521645966, April.
    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    6. Thomas I. Palley, 2008. "Financialization: What it is and Why it Matters," IMK Working Paper 04-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Irregular phenomena and the macroeconomics research agenda
      by Economic Logician in Economic Logic on 2010-11-15 15:56:00

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