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The Great Recession and the teaching of macroeconomics: A critical analysis of the Blanchard, Amighini and Giavazzi textbook

Author

Listed:
  • Giancarlo Bertocco
  • Andrea Kalajzić

Abstract

The publication of the seventh edition of Blanchard’s textbook (Blanchard 2017) and of the third edition of the textbook authored by Blanchard, Amighini and Giavazzi (2017) represents a significant opportunity to assess the impact of the Great Recession on macroeconomic theory and on the teaching of macroeconomics. The authors acknowledge that the mainstream economic model presented in the previous editions of their textbooks is unable to offer a significant explanation of the causes of the crisis as it completely neglects the role of the financial system. They believe that the economics profession has learned the lesson of the crisis since economists understood the limitations of the theoretical model elaborated over the last decades. In the revised editions of their textbooks they present a new theoretical model taking into account the financial system. The objective of this work is twofold: i) to show that the new model does not allow to elaborate a coherent explanation of the Great Recession and: ii) to present the pillars of an alternative theoretical model based on the lessons of Keynes, Schumpeter and Minsky.

Suggested Citation

  • Giancarlo Bertocco & Andrea Kalajzić, 2019. "The Great Recession and the teaching of macroeconomics: A critical analysis of the Blanchard, Amighini and Giavazzi textbook," Working Papers PKWP1905, Post Keynesian Economics Society (PKES).
  • Handle: RePEc:pke:wpaper:pkwp1905
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    File URL: http://www.postkeynesian.net/downloads/working-papers/PKWP1905.pdf
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    References listed on IDEAS

    as
    1. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
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    3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    4. Hyman P. Minsky, 1996. "Uncertainty and the Institutional Structure of Capitalist Economies," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(2), pages 357-368, June.
    5. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
    6. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    7. Hyman P. Minsky, 1980. "Money, Financial Markets, and the Coherence of a Market Economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 3(1), pages 21-31, October.
    8. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, January.
    9. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.),Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
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    11. Olivier Blanchard, 2018. "On the future of macroeconomic models," Oxford Review of Economic Policy, Oxford University Press, vol. 34(1-2), pages 43-54.
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    More about this item

    Keywords

    Financial markets; Crises; Keynes; Schumpeter; Minsky;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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