, Columnist
Econ Grapples With What Causes Recessions
The financial crisis made it clear the field had a huge blind spot.
Who could have imagined what happened next.
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Most of economics is pretty healthy as a discipline. But one branch has really been thrown for a loop — business cycle theory. The financial crisis of 2008 and Great Recession taught macroeconomists that they didn’t really understand the sources of recessions. The long, grinding stagnation that followed demonstrated that economies sometimes don’t bounce back as quickly or automatically as most models had assumed:
Meanwhile, evidence continues to emerge that some of the basic building blocks of modern business-cycle theories — such as the assumed relationship between consumption and interest rates — are faulty.