Noah Smith on the causes of economic recessions:
While the article appears to suggest the superiority of the
sticky-price models (and they are indeed superior to real business cycle theory
based models), it fails to note that, until recently, most macroeconomic models
ignored the role of the financial sector. Financial cycles, in fact, play an
enormous role in driving actual business cycles.
In fact, Robert Lucas himself came around to the conclusion
that financial shocks matter:
“As I have written
elsewhere, I now believe that the evidence on post-war recessions (up to but
not including the one we are now in) overwhelmingly supports the dominant
importance of real shocks. But I remain convinced of the importance of
financial shocks in the 1930s and the years after 2008. Of course, this means I
have to renounce the view that business cycles are all alike!”
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When will the next recession occur?