Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Theme of the Conference

Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought


The Global Financial Crisis and its aftermath seriously questioned the models put forward by mainstream macroeconomics to deal with business cycles. These models – labelled Dynamic Stochastic General Equilibrium (DSGE) – were in particular unable to account for the large, and highly persistent, drop in real activity which characterized the Great Recession. The first response to this challenge was to incorporate significant financial frictions into otherwise standard DSGE models. Some macroeconomists, however, called for a more significant departure from the existing paradigm in order to accommodate the kind of amplifying mechanisms notably suggested by Irving Fisher and Hyman Minsky.

Before Keynes’s General Theory (1936), providing an explanation for the business cycle – and especially for its upper turning point, namely the ‘crisis phase’ – was a central concern in economics. A well-known outcome of the publication of Keynes’s book was to shift the attention of authors away from business cycle fluctuations, and toward the determination of the short-run equilibrium level of employment and income. Business cycle analysis had to wait until the seminal contributions of Lucas (1975) and Kydland and Prescott (1982) to come back to the center stage of economic research. In the meantime, the great stability characterizing the postwar period had led both economists and policymakers alike to believe that the business cycle could be eliminated thanks to well-designed monetary and fiscal policies. More recently, the so-called ‘Great Moderation’ area (spanning from 1984 to 2008) seemed to hold out the same promise. At the end of both episodes, however, the business cycle came back with a vengeance.

Special attention will be granted to proposals that aim to explore how economists have explained the business cycle phenomenon in general, and its crisis phase in particular, and the kind of policy proposals they have formulated to stabilize cyclical movements. Purely by way of example, without claiming to be exhaustive, we indicate some of the problematic areas that seem to us most directly involved in the theme of the conference:

– Are modern explanations of business cycle fluctuations radically different from those of the 1930s?

– To which extent the different crises and recessions of the last hundred years have sharpened our understanding of the business cycle phenomenon? – According to economists, what have been the most important shocks hitting the economy? What have been the main propagation mechanisms of these shocks?

– To which extent a synthetic approach to the business cycle (such as attempted by Haberler in Prosperity and Depression 1937) has been built?

– Is DSGE modeling consistent with old explanations of business cycle fluctuations?

– What have been the main policy measures advocated to stabilize the economy?

– What was the influence of the policies conducted during the Great Depression on the policies conducted during the Great Recession?