Reformulating Macroeconomics: Main Elements

Macroeconomics has many different schools and models, with the most popular approaches to it among economists provided by the Keynesian and classical paradigms. In the years preceding the economic crises that embroiled world economies after 2008, it had seemed to some observers that economics had become a “science” with the maturity, precision and reputation of physics through the “convergence” in macroeconomic modeling around the dynamic stochastic notional general equilibrium (DSNGE) technique (Woodford, 2009). However, after the start of the crises, many observers saw this development as a “large and ultimately damaging consensus on economic thinking” (Sachs, 2009, p. 1), requiring a “rethinking of macroeconomics.” By 2013, it had seemed to some observers that economics, after sufficient tinkering, had managed to sufficiently hammer the DSNGE model into a form that could produce something crudely like the 2008 financial meltdown and ensuing recession. This book does not subscribe to the view that tweaking the current approaches in macroeconomics, especially its DSNGE model, is sufficient and argues that it needs significant revisions, starting with a number of its underlying core ideas, and continuing on to the reformulation of macroeconomic theory and its implied business cycle analysis…