Economics Gets Sucked Into Dark Corners

Economists have developed all sorts of models to describe how the economy functions under an array of different conditions, though no one is sure when a specific model is relevant to economic conditions.
A little sunshine, please.                                                      

Olivier Blanchard, the International Monetary Fund's chief economist and a leading inventor of modern macroeconomic theory, is known as one of the field's gentler critics. In 2008 he wrote a famously ill-timed paper declaring that "The state of macro is good." The biggest financial crisis since the Great Depression followed soon after. In that paper, Blanchard presented New Keynesian models -- which he had a big hand in developing -- as the dominant approach; at the same time, two prominent macroeconomists at the Federal Reserve Bank of Minneapolis were releasing a paper declaring those models "not yet useful for policy analysis!"

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