“Where is the General Theory of the 21st Century?” is an interview series which ask top economists a very important question: “Why haven’t economists come up with a new General Theory that can explain the Great Recession?” This is an inquiry into how the macroeconomics academia changed since the Great Recession, and why the responses from macroeconomists since 2008 are different from their counterpart in the 1930s.
In this installment, we talked to Olivier Blanchard, the C. Fred Bergsten Senior Fellow of Peterson Institute for International Economics and formerly the economic counselor and director of the Research Department at the International Monetary Fund. He was also the chair of the economics department at MIT from 1998 to 2003 and remains as Robert M. Solow Professor of Economics Emeritus.
Blanchard is one of the pioneers in the developments of New Keynesian economic models.
He has written two influential textbooks on macroeconomics, one is the “Lectures on Macroeconomics” coauthored with Stanley Fischer, an essential reading for many graduated level macroeconomics courses. Another one is “Macroeconomics” , an insightful macro textbook for undergraduates.
In this interview, Blanchard discussed his view on the role of DSGE model in modern Macroeconomics and policymaking. He also explained his decision to rewrite his macroeconomics textbooks after the Great Recession. His recent research on hysteresis was also discussed.
(The transcript below has been edited for clarity. All mistakes are ours.)