ABSTRACT
The Great Financial Crisis (GFC) has disrupted the neoclassical paradigm in monetary macroeconomics. Equilibrium models with one representative agent did not feature debt and therefore were inappropriate to analyze the events leading to the GFC. A new paradigm has emerged that looks at the (monetary) world through the lenses of balance sheets.
The new methodology is presented and applied to some issues of relevance, including quantitative easing, TARGET2 and the fiscal-monetary nexus relevant for the question of ‘fiscal space’. The balance sheet approach to macroeconomics offers a new and exciting perspective that is both microeconomic and macroeconomic.
