A micro-founded IS-LM model

Traditional Keynesian models, like the IS-LM one, were discarded as they lack micro-foundations. They were also subject to the Lucas critique (in the sense that one cannot properly estimate a macroeconomic model if the parameters respond to changes in monetary/fiscal policy).

Read more

Quantitative Easing is not Neutral

The recent statements by Eugene Fama, Nobel Laureate in Economics (by the way, the actual title is Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel), on the fact that Quantitative Easing is neutral have puzzled many. According to him, “QE doesn’t do much”. When analyzed from the perspective of current debates in macroeconomics, this view is rather hard to be categorized, since no serious approach I know of really thinks about QE in these terms.

Read more

Liquidity Trap Criticism

Quite surprisingly, although there is so much talk about the liquidity trap and its close concept, the zero lower bound (see the definition of liquidity trap), the criticism of these concepts is rather thin. This is even more puzzling since the liquidity trap concept is known for a long time, ever since Keynes proposed it (Rhodes did not find any mention of it in the work By Keynes).

Read more

Is US in a Liquidity Trap?

Explaining the crises (not all, but many of them) as being liquidity traps is not only a misinterpretation but it also leads to false solutions. Just look at the case of Japan after two decades of “policy experiments”. (New) Keynesians like Krugman have reduced its stagnation problem to a liquidity trap and prescribed a wrong therapy which in the end failed to lead to real economic growth. But probably the case of Japan deserves a separate discussion.

Read more

Is the Euro Area an optimal currency area?

The sovereign debt crisis, see also my blog post on the sovereign debt crisis that focused on deficit spending, has made more evident than ever that the Euro Area is deficient in many respects and one could reasonable state that it is far from an optimal currency area.

Read more

Does Quantitative Easing Cause Inflation?

Following the effects of the last financial crisis, as the nominal interest rate hit the zero lower bound, the central banks in United States, Euro Area and United Kingdom (to be more precise, it was the Bank of Japan that experienced this approach first) have started to implement a rather extreme form of unconventional monetary policy which became known as the Quantitative Easing.

Read more

Quantum Macroeconomics: An Assessment

There is a general agreement that the mainstream macroeconomics has largely failed to predict or correctly estimate the last economic and financial crisis, see the introduction here on the website of the Institute for New Economic Thinking. This failure has motivated more than ever different heterodox approaches to macroeconomics.

Read more