New Directions in Modern Economics series
Chapter 15: The Task Ahead
DEEPENING THE ANALYSIS We have tried to summarize not only the main results of the analysis but also the broader lessons that can be learned from applying the framework used. In this perspective, the regime-switching approach has not only provided a stimulating framework for the medium-run analysis but has also suggested the presence of uncertainty, endogenous dynamics and an integration between real and financial aspects, along with an interdependence between demand and supply forces. All these methodological and theoretical aspects allow us to build models that can deal with the present turmoil and be open to face different problems in longer-run perspectives. As is traditionally said, more work is needed. In particular, three lines of further research are required: 1. 2. 3. Firstly, one has to address further analytical, methodological and quantitative challenges. Secondly, one has to extend the analysis in order to investigate the ‘black box’ of finance. Finally, the relationship between medium and long run must be studied in greater depth. 2. STRONGER JUSTIFICATIONS If one wants to overcome the dichotomy between hydraulic Keynesianism and the so-called dynamic general stochastic equilibrium models (DGSE) into which macroeconomics is divided, one has to consider seriously the criticisms forthcoming from the opposing sides. While it is not necessary to have a microfounded macroeconomics, as we tried to explain in Part I, in order to reach a defensible economic proposition, it is true that stronger economic justifications for the various equations must be provided. The presence of boundedly rational agents who try...
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