This paper addresses several key issues regarding the recent Great Crisis of 2007-2009. The main ones are: was the financial crisis predictable by standard economic models? If not, are these models lacking of forecasting capabilities, or it is not a task of economic models to predict external events such as a systemic financial crisis? On another note, were economists aware that the financial system had set on an unsustainable path, which could eventually lead to a systemic and worldwide crisis? Furthermore, is there a difference in predicting capabilities among models belonging to different schools of thought, namely between Keynesian and Neoclassical theories? Finally, what are the suggestions in economic theorizing that the crisis calls for, so as to prevent it from happening again?
THE THEORETICAL DEBATE ON THE RECENT GREAT CRISIS
MORO, BENIAMINO
2012-01-01
Abstract
This paper addresses several key issues regarding the recent Great Crisis of 2007-2009. The main ones are: was the financial crisis predictable by standard economic models? If not, are these models lacking of forecasting capabilities, or it is not a task of economic models to predict external events such as a systemic financial crisis? On another note, were economists aware that the financial system had set on an unsustainable path, which could eventually lead to a systemic and worldwide crisis? Furthermore, is there a difference in predicting capabilities among models belonging to different schools of thought, namely between Keynesian and Neoclassical theories? Finally, what are the suggestions in economic theorizing that the crisis calls for, so as to prevent it from happening again?
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