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Rethinking macroeconomic theory before the next crisis


  • Marc Lavoie

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, University of Ottawa [Ottawa])


Misguided economics policies relying on an unrealistic macroeconomic theory that denied the possibility of a crisis are at the origins of the Global Financial Crisis. The goal of the present paper is to recall how the end of the Great Moderation has been interpreted by the advocates of mainstream economics, and how they have questioned their own macroeconomic theories as a consequence of what happened during and after the financial crisis. There is thus a need to reconsider most aspects of mainstream theory. In particular, the crisis has once more demonstrated that potential output is influenced by aggregate demand – a phenomenon associated with hysteresis which also questions concepts such as the natural rate of interest and crowding-out effects.

Suggested Citation

  • Marc Lavoie, 2017. "Rethinking macroeconomic theory before the next crisis," Post-Print hal-01435723, HAL.
  • Handle: RePEc:hal:journl:hal-01435723
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    References listed on IDEAS

    1. Robert Pollin, 1991. "Two Theories of Money Supply Endogeneity: Some Empirical Evidence," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(3), pages 366-396, March.
    2. Giuseppe Fontana, 2003. "Post Keynesian Approaches to Endogenous Money: A time framework explanation," Review of Political Economy, Taylor & Francis Journals, vol. 15(3), pages 291-314.
    3. Marc Lavoie, 2014. "Post-Keynesian Economics: New Foundations," Post-Print hal-01343652, HAL.
    4. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    5. Marc Lavoie, 2014. "Post-Keynesian Economics," Books, Edward Elgar Publishing, number 12857.
    6. repec:mes:jeciss:v:18:y:1984:i:3:p:771-797 is not listed on IDEAS
    7. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
    8. Marc Lavoie, 2005. "Monetary base endogeneity and the new procedures of the asset-based Canadian and American monetary systems," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(4), pages 689-709.
    9. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    10. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-1664, December.
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