Macroeconomic Policy Analysis

Abstract

Much of the mainstream literature on macroeconomic policy proceeds by making assertions about the relative efficiency of governments and markets. All too often coordination is assumed to be performed by some mythical deus ex machina, such as the Walrasian auctioneer or a benevolent and more or less omniscient government. The limitations of this approach and the sterile debate to which it gives rise are illustrated and examined in sections 2 and 3. To overcome this problem the relative efficiency of alternative government and non-government allocation and coordination mechanisms need to be analysed explicitly. Section 4 provides a simple illustrative sketch of this approach.

Rethinking Macroeconomic Policy within a Simple Dynamic Model

“…Let us notice that this mainstream consensus was not free of some criticism (Sayer, ; Lavoie, ; Fontana and Palacio‐Vera, ) and, nowadays, the fact that the Great Moderation has been abruptly interrupted by the Great Recession (Krugman, ; Blanchard et al ., ; Romer, ) has sparked off debates regarding the consensus policy prescriptions and the underlying theoretical frameworks (Solow, ; Tamborini, ; Stiglitz, ).…”