Where Modern Macroeconomics Went Wrong
Year: 2017
Type: article
Abstract: This paper provides a critique of the DSGE models that have come to dominate macroeconomics during the past quarter-century. It argues that at the heart of the failure were the wrong microfoundations, which failed to incorporate key aspects of economic behaviour, e.g. incorporating insights from information economics and behavioural economics. Inadequate modelling of the financial sector meant they were ill-suited for predicting or responding to a financial crisis; and a reliance on representative agent models meant they were ill-suited for analysing either the role of distribution in fluctuations and crises or the consequences of fluctuations on inequality. The paper proposes alternative benchmark models that may be more useful both in understanding deep downturns and responding to them.
Source: Oxford Review of Economic Policy
DOI: 10.1093/oxrep/grx057
Author: Joseph E Stiglitz
Institution: Columbia University
Language: English
Topic: Economic Theory and Policy
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $5,098
OpenAlex ID: W2751823717