Issues of modern macroeconomics: new post-crisis perspectives on the world economy

Abstract

Modern macroeconomics has failed in the analysis of both the US banking and the euro crises, respectively, and there is also a rather inadequate view on a range of relevant policy issues. The approach presented herein looks at the reasons for analytical failure and suggests means of improvement – picking up proposals from the literature as well as contributing new ones. The economics profession did not anticipate the banking crisis and there is reluctance to switch to a new paradigm for stabilization policy analysis. Beyond this, there are several analytical challenges which should be integrated into a post-crisis approach: for example, the question of the true degree of economic openness and the role of multinational companies. Moreover, the macroeconomic impact of the digital economic expansion is largely underestimated. The traditional view on asset bubbles has become doubtful. A new paradigm should emphasize the triple analytical challenge of short-term financial market analysis, the routine new questioning of the systemic stability of economic systems and standard macroeconomic modeling – with some refinements; a “Schumpeterian Mundell-Fleming-Solow-Akerlof-model” and sustainability aspects are important on the one hand, on the other hand NKM models have to integrate a broader array of market imperfections. The perspectives presented could jump-start a new paradigm that combines a more realistic macro perspective with a complementary critical institutional analysis.