How to explain the persistence of the Great Recession? A Balanced Stability Approach, Working Paper no.14, Quaderni del Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche dell'Università di Torino

The Great Recession (GR) brings about a stalemate in macroeconomics. On the one hand, while describing the immediate effects of the GR, standard macro models fail to account for its persistence. On the other, heterodox approaches do not regain consensus as they fail to devise an alternative method for capturing the deep causes of the GR that account for its persistence in a systematic way. This paper fills this gap by providing the basic outline of a new framework called Balanced Stability Analysis (BSA). Unlike standard macro which takes stability for granted, BSA provides a balanced assessment of stability, considering both threats and opportunities for phenomena such as the so-called New Economy on a par. On these grounds, the paper draws the conclusion that the persistence of the GR is due to a low level of aggregate demand rooted in the structural changes generated by the NE.