The concept of 'secular stagnation' asserts that unemployment remains high and output below potential because investors are pessimistic. This column presents a way to rethink the IS-LM model to include investor expectations. This 'IS-LM-NAC' model explains the slow recovery from the Great Recession, provides a theory-consistent explanation for secular stagnation, and suggests policy options to escape it.
Roger Farmer, Konstantin Platonov, 02 September 2016
Wendy Carlin, David Soskice, 23 August 2010
The aftermath of the global crisis has highlighted the need to reassess outdated open economy models like the Mundell-Fleming model. The authors of CEPR DP7979 simplify an unwieldy New Keynesian model to help non-specialists and policymakers analyze key challenges of macroeconomic policymaking in an open economy, including CPI inflation targeting and exchange rate overshooting.
Roger Farmer, 28 February 2010
What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the second in a two-part outline of a new paradigm for macroeconomics in the 21st century, focusing on policy. It argues that fiscal policy is not the right response to a financial crisis.
Roger Farmer, 27 February 2010
What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the first of a two-part outline of a new macroeconomics paradigm for the 21st century, starting with the theory.
Roger Farmer, 04 February 2009
This column proposes a new paradigm to reconcile Keynesian economics with general equilibrium theory. It suggests that, just as it sets the fed funds rate to control inflation, the Fed should set a stock market index to control unemployment. This would not let every manufacturing firm and every bank fail at the same time “as a result of speculative movements in markets that serve no social purpose.”