The financial crises of 2007-2011 put the new neoclassical synthesis to a serious test and became the occasion for harsh criticism from both the neoclassical school and New Keynesianism. The idea of dynamic disequilibrium is once again in the spotlight, and the investment-savings imbalance turns out to be the most logical explanation for the pathological deviations from normal economic development. In this connection, the investment-savings imbalance and the possibilities of quantifying this problem within the framework of dynamic stochastic general equilibrium models are discussed. The analysis is presented through the prism of the non-equilibrium, which inherits the main features of the neo-equilibrium (see Radev, 2011).
The research is motivated by the models of non-walrasian disequilibrium and the attempts to set up a concept of monetary policy in the summary framework of dynamic stochastic general equilibrium (DSGE). The key points in the analysis are the imbalances investment-savings and the "gap" between market real interest rate and natural rate of interest, generated by real and nominal shocks and different forms of friction. The main focus is the role of the natural interest rate that balances savings and investment at general equilibrium. The analysis changes some traditional perceptions of alternative rules for managing of interest rate as a part of monetary policy. In particular, the article highlights the advantages of adaptive versus optimization rules for interest rate, where information on natural interest rate is not enough and the principle of Taylor is inapplicable due to the limited response of the central bank to the excess inflation/deflation.
The series of financial crises shook seriously the new consensus between neoclassical and new Keynesians on dynamic stochastic general equilibrium (DSGE) models. The criticisms were directed mainly to inadequate policy of monetary institutions and the inability of these models to foresee similar crises. In the ensuing debate on the future of macroeconomic theory two approaches were outlined: (1) Combination of alternative economic theories in new, free framework that ignores DSGE models; and (2) Critical analysis of the shortcomings of the DSGE models that enrich them with new ideas and methodological instruments. This article belongs to the second approach and presents DSGE models through the lens of new, non-Walrasian's version of the dynamic disequilibrium. Unlike neo-Walrasian disequilibrium, not the natural equilibrium prices of Smith and Marshall, but the natural rate of Wicksell are put in the role of a gravity center. Endogenezation of capital allows the model to involve the problem of intertemporal coordination, which is pathological for the economy and leads to financial crises.
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