The Great Recession and the teaching of macroeconomics: A critical analysis of the Blanchard, Amighini and Giavazzi textbook

By Giancarlo Bertocco, Andrea Kalajzić

PKES Working Paper 1905

February 2019

The publication of the seventh edition of Blanchard’s textbook (Blanchard 2017) and of the third edition of the textbook authored by Blanchard, Amighini and Giavazzi (2017) represents a significant opportunity to assess the impact of the Great Recession on macroeconomic theory and on the teaching of macroeconomics. The authors acknowledge that the mainstream economic model presented in the previous editions of their textbooks is unable to offer a significant explanation of the causes of the crisis as it completely neglects the role of the financial system. They believe that the economics profession has learned the lesson of the crisis since economists understood the limitations of the theoretical model elaborated over the last decades. In the revised editions of their textbooks they present a new theoretical model taking into account the financial system. The objective of this work is twofold: i) to show that the new model does not allow to elaborate a coherent explanation of the Great Recession and: ii) to present the pillars of an alternative theoretical model based on the lessons of Keynes, Schumpeter and Minsky.

Keywords: Financial markets, Crises, Keynes, Schumpeter, Minsky

JEL classification: E10 E20 E30 E40 E44