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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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Is Macroeconomics Off Track?

Is Macroeconomics Off Track?

(p.181) Chapter 23 Is Macroeconomics Off Track?
The Economists' Voice 2.0

Casey B. Mulligan

Columbia University Press

This chapter defends neoclassical growth models by providing some examples of the application of these models to the current and previous recessions. It argues that while a variety of tools would be appropriate for understanding the roles of monetary and fiscal policy, the neoclassical growth model’s decomposition offers some suggestions as to which approaches might help the most. For the current recession, neoclassical decomposition led the author to look further at public policies—absent from some of the other recessions—that might have caused labor supply to shift relative to its demand. He observed that the federal minimum wage was hiked three consecutive times. He also turned up a major policy (the Treasury and the Federal Deposit Insurance Corporation plans for modifying mortgages) that creates marginal income tax rates in excess of 100 percent. Much research remains to be done, and undoubtedly other users of the neoclassical growth model will make convincing cases for the roles of monetary and other factors.

Keywords:   neoclassical growth models, economic recession, financial crisis, fiscal policy, monetary policy, public policy, labor supply, income tax, minimum wage, decomposition

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