Credit and finance in today’s mainstream

The chapter explores the emergence of New Keynesian Economics and the confluence of mainstream macroeconomics to the so-called new neoclassical synthesis, characterized by the important role of market imperfections. Thanks to the abandonment of the hypothesis of perfectly competitive markets and to the emphasis on informational imperfections, a new generation of macroeconomic models made some steps forward in including banks or finance in their interaction with the real economy. But a number of important issues remain open. The chapter highlights the ambiguity of the notion of imperfections and the difficulties arising from still regarding the Arrow-Debreu model as a benchmark. The authors also argue that behavioural finance, by relying on psychological research, offers analyses of the functioning of financial markets far from those of the efficient markets hypothesis and closer to Keynes’s approach. Human behaviour, at the individual and collective levels, cannot be explained by the assumption of fully rational agents optimizing over infinite horizons.