2010 Reports

The Slump, the Recovery, And the 'New Normal' (Trilogy on the analytics of the crisis and the ensuing slump)

Phelps, Edmund S.

In this paper I want to report on my understanding of the recent boom and recent slump from the perspective of stylized models of a structuralist kind – models akin to those in my 1994 book Structural Slumps and subsequent papers addressing the internet boom. My aim here is to see how far such non-monetary models can go toward illuminating the stages of the recent crisis – the boom, the downturn, the slump and the start of a recovery – the crisis that originated in the U.S., U.K., Spain, and Ireland and went on to have repercussions on other economies where banks made bad loans. The story told about these events is non-monetary in character in the sense that it abstracts from any role played by illiquidity. It is also non-REH in that it avoids the surreal premises of pervasive efficiency and knowledge that is unknowable. Let me add that parts of this survey remain sketchy at points. Like all of us thinking about this subject, my research on the issues here are very much a work in progress.