Scope and Flaws of the New Neoclassical Synthesis

The current consensus in macroeconomics represented by the New Neoclassical Synthesis (NNS) is based on dynamically stochastic general equilibrium (DSGE) modeling with Real Business Cycle (RBC) core to which nominal rigidities are added by way of imperfect competition. The claim is that the NNS model is capable of rigorously reproducing observable phenomena and is able to provide a microeconomically well-founded basis for the design of optimal policy rules, since it is amenable to welfare analysis. Nevertheless these results come at the price of many ad-hocery and other shortcomings which are indispensable for intertemporal equilibrium modelling of the current kind. Moreover the NNS did not let us think about the financial crisis and the macroeconomic imbalances that were forming in the years of the Great Moderation.