Catastrophe Theory in Macroeconomics

Abstract

The Great Depression stimulated a major outbreak of theorizing with respect to the origins of macroeconomic fluctuations. Of course the dominant work of this period was Keynes’ (1936) The General Theory of Employment, Interest and Money which inspired the view that such business cycles could be eliminated by the appropriate application of aggregate demand management policies.¹ Both bitter historical experience, as well as a variety of theoretical critiques, have since seriously weakened this view. Whether these cycles are exogenous or endogenous, regular or irregular, rational or irrational, or whatever, few are now so sanguine regarding our ability to utterly eliminate them.²

“The aim of teaching a horse to move beneath you is to remind him how he moved when he was free.” Henry Taylor, 1985, “The Flying Change”