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Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"

Author

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  • Muriel Dal Pont Legrand

    (Université Côte d'Azur, France
    GREDEG CNRS)

  • Harald Hagemann

    (University of Hohenheim, Stuttgart)

Abstract

There is no doubt that DSGE (Dynamic Stochastic General Equilibrium) models which were considered benchmark models during the Great Moderation period, were challenged enormously when the global financial crisis developed. As business cycles models, their capacity to provide insights into the origins and mechanisms of propagation failed in the context of the crisis. This questions their validity also as a basis for economic policy advice. As a consequence, many economists are pleading for new benchmarks or for a deep reconsideration of both the theoretical and empirical sides of the arguments. Although no new consensus has yet emerged on possible "solutions" to or reorientations of the research program in this field, many economists are trying to understand where modern macroeconomics went wrong. As historians of economic thought, we propose to retrace the evolution of business cycles theory and of its empirical practices in order to better understand the way this literature today addresses macroeconomic volatility and eventually crises.

Suggested Citation

  • Muriel Dal Pont Legrand & Harald Hagemann, 2019. "Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"," GREDEG Working Papers 2019-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2019-01
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    References listed on IDEAS

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    Cited by:

    1. Muriel Dal Pont Legrand & Harald Hagemann, 2019. "Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"," GREDEG Working Papers 2019-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    2. Claire Baldin & Ludovic Ragni, 2019. "La conception de l'homme dans la théorie de l'Echange Composite de François Perroux : entre homo economicus et homo religiosus," GREDEG Working Papers 2019-03, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

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    Keywords

    equilibrium business cycles theories; dynamics; impulse; shocks; propagation mechanism(s); empirical validation; calibration; crisis;

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