Theoritical Seekings in MacroeconomicsEmre Örün
Dynamics stochastics general equilibrium (DSGE) models are dominant until the 2008 global financial crisis. Although some economists have stated that macroeconomics is a mature science, others believe that macroeconomics that is based on DSGE models has come to its end. Although these opinions are not true, the validity of macroeconomic theories that are based on unreal assumptions and ignore the probability of financial crisis have been questioned during the global financial crisis. This study investigates how macroeconomics has been affected by the global financial crisis on a theoretical basis. The first aim of this study is to determine how valid DSGE models are currently. Another purpose of this study is to find out why macroeconomics failed to predict the global financial crisis and the inadequacies of macroeconomics. Relevant studies have been examined to determine how “macroeconomic theories” has been affected by the financial crisis from both theoretical and economic policy perspectives and issues that economists have different opinions on. In this context, it can be said that DSGE models were not sufficient to predict the financial crisis, and it is essential to use unconventional monetary and fiscal policies to overcome a financial crisis.
Makro İktisatta Teorik ArayışlarEmre Örün
Dinamik stokastik genel denge (DSGD) modelleri küresel finansal krize kadar baskınlığını korumuştur. Bazı iktisatçılar artık makro iktisadın olgun bir bilim olduğunu belirtirken; karşıt taraftaki iktisatçılar DSGD temelli makro iktisadın sonunun geldiğini ifade etmişlerdir. Her ne kadar iki görüşün kesin doğruluğu söz konusu olmasa da gerçek dışı varsayımlar üzerine temellenen ve iktisadi bir krizin olma ihtimalini göz ardı eden makro iktisat teorilerinin geçerliliği küresel finansal kriz ile sorgulanmıştır. Bu çalışmanın konusu, makro iktisadın küresel finansal krizden teorik temelde nasıl etkilendiğini araştırmaktır. Çalışmanın amaçlarından ilki, DSGD modellerinin günümüzde ne kadar geçerli olduğunu tespit etmeye çalışmaktır. Çalışmadaki bir diğer amaç ise makro iktisadın küresel finansal krizi öngörmede nerede hatalı olduğunu ve eksik taraflarının neler olduğunu tespit etmektir. Çalışmada makro iktisat teorisinin küresel finansal krizden hem teorik hem de iktisat politikası açısından nasıl etkilendiğini ve hangi konularda fikir ayrılıklarının olduğunu tespit etmek için literatüre yön veren çalışmalar incelenmiştir. Buna göre, DSGD modellerinin krizi öngörmede yeterli olmadığı ve finansal krizi atlatmak için hem geleneksel olmayan para politikası araçlarının kullanılması hem de maliye politikasına ihtiyaç olduğu söylenebilir.
What is wrong in economics or economic policies? The latest 2008 global financial crisis has proved that something is wrong in economics, especially in macroeconomic theory. During the crisis, the DSGE could not explain why the crisis happened and what should be done during the crisis. Therefore, a few problems have emerged in economic theory: (i) What kind of new ideas are needed in economics? (ii) What should be eliminated from economic theory? (iii) Is there a need for a new benchmark model? If so, how should it be? (iv) Will there be a change in paradigm? (v) How should the new models be used? (Vines & Wills, 2018).
The effects of the global financial crisis on macroeconomic theories, which is the main subject of this study, have been investigated. Benchmark model has founded conflicting unpleasant assumptions about firms and consumers. Some assumptions, such as the representative agent, have been questioned in economics, so more realistic assumptions, such as the heterogeneous agent, that interact with each other should be developed (Blanchard, 2018; Colander et al. 2008). Although these assumptions may be more simplified, they have to be coherent with reality. Another reason for the failure of the DSGE model is its commitment to the representative rational agent with rational expectations. Moreover, the financial market and behavior of the agent are ignored in the model, which is another reason for the criticism of the DSGE models (Stiglitz, 2014). The ignoring of financial markets in macroeconomic theories and having a rational agent in DSGE models have not been only reason of financial crisis. According to Krugman (2018), another reason why the models failed to predict the global financial crisis is that they ignore macroeconomics data. Krugman (2018) stated that adding finance and financial frictions to macroeconomics is meaningful, but understanding the price dynamics is important in DSGE models.
What have we learned from the global financial crisis? After the global financial crisis, agent-based computational economics and complexity economics have been understood as new alternative theories in macroeconomics. Moreover, the complex structure of the financial system and financial improvements have become important in macroeconomics, especially in the development of new theories (Blanchard & Summers, 2017). According to Blanchard and Brancaccio (2019), the following lessons should be learned from the financial crisis:
• The first lesson is about the financial system. The role of the financial system in the economy has been very simplified, so many macroeconomic models have not been used to analyze the financial sector; this is a problem.
• The second lesson is that different economic policies should be used to control the financial system and avoid risks.
• The third lesson is about regulation. When a regulation is implemented, people try to find deficiencies in the regulation. Moreover, the successful implementation of a regulation takes time. Therefore, policymakers should be careful when implementing a regulation.
• The fourth lesson is that when crisis hit economies, they fluctuate around the trend and return to equilibrium on their own. The view that the economy is stable is wrong.
• The last lesson from the global financial crisis is about the rise of populism. Economic insecurity and the rise in inequality are the main cause of populism.
The global financial crisis has raised these questions: What do we expect from the benchmark models? How should economics education be carried out? Should it be simple? It can be simplified, but it should not be away from realities. Moreover, it has been proved that unorthodox monetary policies should be used to overcome a financial crisis. Therefore, quantitative easing, forward guidance, and zero lower bound have been frequently used as monetary policy tools. Although, different monetary policy tools have been used during the crisis, it has not enough to use them alone. Fiscal policy should be implemented with monetary policy during a financial crisis. Fiscal policy has a different way of reducing the effect of economic depression and ensuring income distribution, which is the main reason why fiscal policy is used.