engleski

The Eurozone's Crisis Conundrum and the Role of Macroeconomic Theory

In the years before the global financial crisis (GFC), macroeconomic profession converged on many points of how financial markets work and how they should be regulated. However, the course of events mired the majority of European Union (EU) economies in the state of prolonged lower output, higher unemployment and ever increasing levels of both private and public debt. They have marked an end to the economics profession honeymoon. Afterward, the main debate in the process of designing the crisis management response started to revolve around two opposed macroeconomic views: the New Keynesian and the New Classical/supply-side view. The New Keynesian view relies on the expansionary policy targeted to boost aggregate demand. However, New Classicals/supply-siders advocate structural reforms and austerity as the path out of the current state of economic malaise. We provide an analysis of how those opposing views fail to appreciate the fundamental tenets of our monetary economy and inspire ineffective policies.

macroeconomic orthodoxy ; fiscal policy ; European Central Bank ; endogenous money ; debt

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