The Post-crisis Critique of the NCM: Theoretical Aspects

Abstract

Turbulent economic events in the past have often triggered substantial changes in ruling economic paradigms. It was expected by many that the Global Crisis would provoke a similar outcome. We show in this chapter that by and large, this expectation was belied, and the NCM emerged almost unscathed through the various criticisms levelled both on its theoretical and policy aspects. This chapter is devoted to a detailed review of the theoretical criticisms levelled against the main tenets of the NCM particularly the hypotheses of rational expectations, representative agent, efficient markets, etc. There is also a detailed critique of DSGE models as these forms an integral component of the NCM.