Abstract:

The efficiency of the main trends in macroeconomic regulation that national governments and regulators—and international regulators—have adhered to since the beginning of the global economic crisis in 2007 have been the subject of debate. A number of papers have investigated the nature of the economic crisis and the tools used to manage it (Chamley, 2012 and He and Krishnamurthy, 2012 in the EAE Annual Meeting 2013). In the meantime, despite the corrective measures taken, sub-crisis situations continue to occur, including the risk of technical default occurring twice in the US, the constant risk of Greece’s default in the Euro zone, and the risk of default by Cyprus; these sub-crises have provoked additional suggestions for regulations. Various approaches have been suggested to address the current crisis, but these mainly involve the field of financial regulation and tend to be based upon theories that put discretionary fiscal policy at the center of regulatory procedures. A smaller group of researchers and practitioners seem to view the recession as a crisis of the real sector of the economy (Roubini, 2010 or EUP, 2008). Those who tend to see a real-sector crisis do not focus on what is occurring in the financial sector (although they confirm there is a bubble). Thus, the regulatory measures that they suggest address the real sector. Both approaches seem to have rational arguments that should be considered, and both speak of economic waves and business cycles; however, the two approaches view these processes from different perspectives. This indicates that the underlying theoretical frameworks of business cycle management are inadequate tools with which to understand the nature of business cycles and economic waves in the modern economy; such theoretical frameworks cannot generate efficient regulatory measures to meet the current economic challenges. Thus, an alternative to the accepted explanations of business cycles should be investigated, and this alternative should consider the ideas expressed by both financially driven and real-economy driven approaches in contemporary economic theory.