Macroeconomic Theory and Recent Events
Macroeconomic Theory and Recent Events
The financial crisis of 2007–2008 and subsequent recession have been the most wrenching economic events since the Great Depression. As of this writing, these events appear global in scope, sharply slowing the growth of North America and Europe, and even that of India and China. In the end, therefore, these events have significantly hurt the prospects of more than half of the world’s population. What does modern macroeconomics have to say about any of this? How should research in macroeconomics change as a result? This chapter gives a selective survey of key types of models that help macroeconomists interpret the events and aftermath of the crisis, as well as a discussion of topics now requiring our attention.
Keywords: Financial crisis, Debt, Bubbles, Efficient Markets Hypothesis, Bank Runs, Shadow Banking, Too-big-to-fail, Externalities
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