1 THE END OF THE CONSENSUS IN MACROECONOMIC THEORY? A METHODOLOGICAL INQUIRY

Abstract: After the acrimonious debates between the New Classical and New Keynesian economists in the 1980s and 1990s, a consensus developed, namely, the New Neoclassical Synthesis. However, the 2007 credit crunch exposed the severe limitations of this approach. This paper presents a methodological analysis of the development of the New Classical Synthesis and how the pseudo paradigmatic assumptions of the representative agent, market clearing, subject to sticky prices, excluded the Keynesian notion of involuntary unemployment arising from lack of effective demand. It explains why the foundations of the New Classical Synthesis are unlikely to ever provide a sound basis for explaining cyclical fluctuations in a monetary economy beset by coordination failures