New consensus macroeconomics

New Consensus Macroeconomics (NCM) is a school of thought in macroeconomics that emerged in the 1980s and 1990s. It is also known as the "New Keynesian" or "New Neoclassical Synthesis" approach. The core idea of NCM is that the economy is characterized by imperfect information, sticky prices, and imperfect competition, which leads to deviations from the idealized assumptions of classical economics.

The key features of NCM are:

  1. Imperfect information: Agents do not have perfect knowledge of the economy, which leads to uncertainty and risk.
  2. Sticky prices: Prices do not adjust immediately to changes in market conditions, which leads to a role for monetary policy in stabilizing the economy.
  3. Imperfect competition: Firms and households do not behave as perfect competitors, which leads to market power and inefficiencies.
  4. Monetary policy: The central bank has a role in stabilizing the economy through monetary policy, particularly in the face of shocks and uncertainty.
  5. Fiscal policy: Government spending and taxation can also play a role in stabilizing the economy, particularly in the face of shocks and uncertainty.

The NCM approach has been influential in shaping macroeconomic policy, particularly in the areas of monetary policy and fiscal policy. It has also been used to analyze a wide range of macroeconomic phenomena, including business cycles, inflation, and economic growth.

Some of the key proponents of NCM include:

  1. Joseph Stiglitz: A Nobel laureate and former Chief Economist of the World Bank, Stiglitz is known for his work on imperfect information and the role of government in the economy.
  2. George Akerlof: A Nobel laureate and former Professor at the University of California, Berkeley, Akerlof is known for his work on imperfect information and the role of psychology in economic decision-making.
  3. Michael Woodford: A Professor at Columbia University, Woodford is known for his work on monetary policy and the role of central banks in stabilizing the economy.
  4. Ben Bernanke: A former Chairman of the Federal Reserve, Bernanke is known for his work on monetary policy and the role of central banks in stabilizing the economy.

Some of the key criticisms of NCM include:

  1. Overemphasis on monetary policy: Some critics argue that NCM places too much emphasis on monetary policy and neglects the role of fiscal policy and other factors in shaping the economy.
  2. Lack of microfoundations: Some critics argue that NCM lacks a clear microeconomic foundation, and that the models used to analyze the economy are too aggregate and do not capture the complexities of individual behavior.
  3. Overly optimistic views of policy effectiveness: Some critics argue that NCM assumes that policy interventions can be highly effective in stabilizing the economy, which may not always be the case.

Overall, NCM has been an influential approach in macroeconomics, and its ideas have shaped policy debates and research in the field. However, it is not without its criticisms, and ongoing research is seeking to refine and improve our understanding of the economy and the role of policy in shaping it.