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Whither New Consensus Macroeconomics? The Role of Government and Fiscal Policy in Modern Macroeconomics

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  • Giuseppe Fontana

Abstract

In the face of the dramatic economic events of recent months and the inability of academics and policymakers to prevent them, the New Consensus Macroeconomics (NCM) model has been the subject of several criticisms. This paper considers one of the main criticisms lodged against the NCM model, namely, the absence of any essential role for the government and fiscal policy. Given the size of the public sector and the increasing role of fiscal policy in modern economies, this simplifying assumption of the NCM model is difficult to defend. This paper maintains that conventional arguments used to support this controversial assumption--including historical reasons, theoretical propositions, and practical issues--do not have solid foundations. There is, in fact, nothing inherently monetary in the stabilization policies found in the model. Thus, fiscal policy could play a role at least as important as monetary policy in the NCM model.

Suggested Citation

  • Giuseppe Fontana, 2009. "Whither New Consensus Macroeconomics? The Role of Government and Fiscal Policy in Modern Macroeconomics," Economics Working Paper Archive wp_563, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_563
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    References listed on IDEAS

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    1. Gennaro Zezza, 2009. "Fiscal policy and the economics of financial balances," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, pages 289-310.
    2. Rebecca M. Blank, 1991. "Why Were Poverty Rates So High in the 1980s?," Economics Working Paper Archive wp_57, Levy Economics Institute.
    3. Easterlin, Richard A & Macdonald, Christine & Macunovich, Diane J, 1990. "How Have American Baby Boomers Fared? Earnings and Economic Well-Being of Young Adults, 1964-1987," Journal of Population Economics, Springer;European Society for Population Economics, pages 277-290.
    4. Susan E. Mayer & Christopher Jencks, 1989. "Poverty and the Distribution of Material Hardship," Journal of Human Resources, University of Wisconsin Press, vol. 24(1), pages 88-114.
    5. Katharine L. Bradbury, 1986. "The shrinking middle class," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 41-55.
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    Cited by:

    1. Isaacs, Gilad, 2014. "The myth of “neutrality” and the rhetoric of “stability”: macroeconomic policy in democratic South Africa," MPRA Paper 54426, University Library of Munich, Germany.
    2. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation: A Post-Kaleckian perspective on the US and Germany," IPE Working Papers 04/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Hein, Eckhard, 2016. "Post-Keynesian macroeconomics since the mid-1990s: Main developments," IPE Working Papers 75/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
    5. Canale, Rosaria Rita & Napolitano, Oreste, 2009. "The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008," MPRA Paper 20207, University Library of Munich, Germany.
    6. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid-1990s - main developments," FMM Working Paper 01-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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