The Crisis of Macroeconomics: Finance and Inequality in Post-crisis Scholarship

Prior to the financial crisis of 2008, Dynamic Stochastic General Equilibrium (DSGE) modeling, the workhorse model of macroeconomics for the last thirty odd years, had little to say about shadow finance or economic inequality, both of which are now seen as key ingredients of the crisis. This paper asks how a structural discipline like mainstream macroeconomics reacts when it comes up against such serious anomalies. To shed light on this question the paper codes 115 relevant articles from three top economics journals. This coding revealed that while review articles and reflections on the state of the discipline express a great deal of existential angst and professional doubt, there has been limited change in the modeling practice of macroeconomists. While there has been some opening to non-DSGE methods, the majority of research articles still use this approach and there has also been a considerable effort to reconcile it with the events of the crisis.