Must-Read: Jérémie Cohen-Setton: The Critique of Modern Macro: "[Did] the modern macroeconomic tools developed in the stable macroeconomic environment of the Great Moderation...

...fail us when we entered the Great Recession?... Paul Krugman writes that ranting about the need for new models is not helpful.... Tony Yates writes that the 2000 Benhabib and Schmitt-Grohe’s paper on the ‘perils of Taylor rules’ is one example of a paper [but there are hundreds] that embraced both nonlinearity and multiplicity.... Noah Smith writes that the favorite macro models didn't have any finance in them, with the possible lone exception of the Bernanke-Gertler 'financial accelerator' models. That was a big mistake.... Olivier Blanchard writes that we all knew that there were ‘dark corners’—situations in which the economy could badly malfunction. But we thought we were far away from those corners.... Mark Thoma writes that all the tools in the world are useless if we lack the imagination needed to build the right models.... Noah Smith writes that if you have models for everything, you don't actually have any models at all.... Paul Krugman writes that... theory provided excellent guidance, if only policy makers had been willing to listen...

http://www.bruegel.org/nc/blog/detail/article/1613-the-critique-of-modern-macro/

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