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Economics in crisis: It is time for a profound revamp. CEPS Commentaries, 23 July 2009

de Grauwe, Paul. (2009) Economics in crisis: It is time for a profound revamp. CEPS Commentaries, 23 July 2009. [Policy Paper]

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    Abstract

    The basic error of modern macroeconomics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level. It will remain difficult to model these collective movements, but if the discipline of macroeconomics wants to become relevant again, its practitioners will have to start calculating the ‘madness of crowds’, that is, the collective movements of euphoria when agents underestimate risk, followed by collective depression in which perceptions of risk are dramatically increased.

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    Item Type: Policy Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > economic policy
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on/reforms/economic governance
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Commentaries
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 26 Aug 2009
    Page Range: p. 2
    Last Modified: 15 Feb 2011 18:14
    URI: http://aei.pitt.edu/id/eprint/11430

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