Economic crisis lead to good things. One such thing, which I have been hoping for, is a new economic theory or area/branch. I am not sure what follows will be the new paradigm but I really like that something creative came out of this crisis.
The idea is “market monetarism” and belongs to Lars Christensen who wrote a paper “Market Monetarism: The Second Monetarist Counter-Revolution“.
Lars wrote a guest post on Marcus Nunes’ blog about “market monetarism”.
Here is the abstract of the paper:
“Market Monetarism is the first economic school to be born out of the blogosphere. Market Monetarism shares many of the views of traditional monetarism but unlike traditional monetarism Market Monetarism is sceptical about the usefulness of monetary aggregates as policy instruments and as an indicator for the monetary policy stance. Instead, Market Monetarists recommend using market pricing to evaluate the stance of monetary policy and as a policy instrument. Contrary to traditional monetarists - who recommend a rule for money supply growth - Market Monetarists recommend targeting the Nominal GDP (NGDP) level. The view of the leading Market Monetarists is that the Great Recession was not caused by a banking crisis but rather by excessively tight monetary policy. This is the so-called Monetary Disorder view of the Great Recession.”
From this it seems that in this theory recessions are always and everywhere a monetary phenomenon. I can live with that.