Niall Ferguson in the (UK) Sunday Times (subs. req'd) --
As even the Queen knows, the "new Keynesian" macroeconomic models that are the foundation of modern monetary policy failed to predict the crisis and failed to foresee its duration. The reason for their failure is now clear: to achieve mathematical elegance, their creators had left out things hat turned out to be crucial -- some of them financial (such as the size and structure of bank balance sheets), some of them social (such as changing dependency ratios) and some of them political (the unexpected end of the Cold War; the delusion of European Monetary Union).
Missing from his list is fiscal policy, on which he and Paul Krugman (unmentioned in the article) have feuded repeatedly.
As even the Queen knows, the "new Keynesian" macroeconomic models that are the foundation of modern monetary policy failed to predict the crisis and failed to foresee its duration. The reason for their failure is now clear: to achieve mathematical elegance, their creators had left out things hat turned out to be crucial -- some of them financial (such as the size and structure of bank balance sheets), some of them social (such as changing dependency ratios) and some of them political (the unexpected end of the Cold War; the delusion of European Monetary Union).
Missing from his list is fiscal policy, on which he and Paul Krugman (unmentioned in the article) have feuded repeatedly.
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