Scrap micro-foundations to repair macroeconomics – Steve Keen

Lehman Brothers building
Many economists failed to see the 2008 crisis coming

Macroeconomists ought to ditch their reliance on micro-founded models in favour of modelling dynamic systems with credit at their heart, Steve Keen said today (March 8).

Keen, professor of economics at Kingston University, said models such as the dynamic stochastic general equilibrium (DSGE) models widely used at central banks had led economists astray with an unrealistic portrayal of credit.

Keen attributed the attempt to build a macro model on micro-foundations to many economists’ blindness