Relevance of Keynesianism in the Post-Recession Period

Tracing the rise of Keynesian policies in the post-second world war years to its decline in the 1970s and 1980s with monetary policy playing a central role in macroeconomic stabilisation, this article examines its resurrection in the years following the global financial and economic crisis of 2007-08. It points out that at the heart of the present stimulus-austerity debate is the effectiveness of Keynesian stimulus policies during episodes of growth falling below potential, and classifi es growth crises into three different types for analytical clarity. Analysis shows that though the growth crisis in advanced economies has spilled over into developing ones through trade and investment channels, its nature is different. The focus in these countries should therefore be on addressing supply shocks and structural reforms, including investment in infrastructure, through a change in the fi scal mix.