European Journal of Economics and Economic Policies: Intervention

Teaching monetary theory and monetary policy implementation after the crisis*

Marc Lavoie *

Keywords: teaching economics, realism, DSGE models, fractional-reserve banking, post-Keynesian economics


The author reflects on the state of macroeconomic theory, and more specifically on how monetary economics is being taught in the aftermath of the global financial crisis. Whereas heterodox macroeconomic theory is very much alive due to the influx of a large number of contributions and contributors, the latter still have a hard time finding positions in the academic world, as journal and departmental ranking exercises have restricted so-called standards of excellence to the neoclassical approach. The crisis has not yet induced mainstream economists to open up to different approaches that put more emphasis on realistic features than on imaginary ones based on neoclassical micro-foundations. As an exemplar, the chapters on money and banking in two first-year textbooks are being examined, an orthodox one by Greg Mankiw and a heterodox one by Neva Goodwin et al. Unsurprisingly there is little to be learned about the crisis from Mankiw's book, while the book by Goodwin et al. devotes a large amount of space to the causes and consequences of the crisis. Still, Goodwin and her co-authors are not heterodox enough: they are less heterodox than a number of central bankers when it comes to a number of key features of monetary theory.

Author Notes

Paper presented at the FMM conference in Berlin, October 2014, in the session ‘Teaching economics after the crisis: reform of or alternatives to the mainstream?’. Sebastian Gechert, the chair of the session, when he announced the title of the session on its eve, said that he was looking forward to getting answers about how alternatives could be or should be introduced in the economics curriculum and what strategies should be pursued to this end. As he spoke I realized that I had prepared no answer to these very important questions. However, while I will say nothing about these here, based on my personal experience I did attempt to tackle these issues at a previous conference. My thoughts on these can be found in a chapter of the book on teaching post-Keynesian economics that was edited by the organizers of that conference, Jesper Jespersen and Mogens Madsen (Lavoie 2013). Also, elsewhere (Lavoie 2012), I have put forward some reflections about the future of post-Keynesian and heterodox economics after the crisis, along with a review of the various pieces of advice that have been offered to economists who wish to go beyond a reform of the mainstream. With Fred Lee, who most unfortunately for all of us passed away, I have also collected the views of many other colleagues on the future of heterodox economics, some of whom also presented possible strategies about how best to modify the economics curriculum in universities (Lee/Lavoie 2013).

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