This paper investigates how theories of financial markets and their impact on the real economy have developed since the great financial crisis of 2008. It shows that post-crisis a critical macro-financial view on financial markets has taken hold in academia which problematizes the nature of financial markets as instable and subject to boom and bust cycles, in turn generating negative spill-over effects for the economy.
This new knowledge links finance and macro-economy where before there was a “gaping hole”. It goes on to show that economists in central banks and international organizations and academics affiliated with these institutions have been central producers of such economic knowledge, influencing the profession as a whole. It elaborates on the mode of collaboration between these applied economists and academia in the production of this new knowledge, pointing to the peculiar task environment of the former. This task environment finds its expression in the production of actionable knowledge that could guide central bank interventions and stylized facts about the economy-finance relationship that could legitimize it. Seeking to legitimize the intervention of central banks in the context of macro-prudential regulation to combat heightened financial instability, these interventions hold the new field of macro-finance together and provide irritations for follow up work by academics.
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