Miller, Marcus and Zhang, Lei (2015) The hedgehog and the fox : from DSGE to Macro-Pru. The Manchester School, 83 . pp. 31-55. doi:10.1111/manc.12119

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Abstract

Prior to the financial crisis of 2008/9, DSGE models-without-money set a new standard in applied macroeconomics; and they were widely adopted by Central Banks to help achieve their inflation targets. Controlling inflation did not deliver financial stability, however: far from it. The appeal of macro-models based on ‘efficient financial markets’ surely contributed to over-confidence before the crisis. But what about externalities? We examine, in particular, how steps to mitigate microeconomic principal/agent problems can create macroeconomic externalities—‘financial accelerators’ that affect balance sheets in pro-cyclical fashion. Now is the time, we argue, to embrace such a wider perspective.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Macroeconomics -- Mathematical models, Equilibrium (Economics), Global Financial Crisis, 2008-2009
Journal or Publication Title:	The Manchester School
Publisher:	Wiley-Blackwell Publishing Ltd.
ISSN:	1463-6786
Official Date:	25 August 2015
Dates:	Date Event 25 August 2015 Published 22 May 2015 Accepted
Date of first compliant deposit:	12 February 2018
Volume:	83
Page Range:	pp. 31-55
DOI:	10.1111/manc.12119
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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