Fallacy of Composition: Shocks vs Stickiness
Macroeconomists are fond of referring to “outside shocks.” The rest of us would agree that oil shocks , a pandemic , a volcanic eruption , an outbreak of a major war and the like are exogenous to the macro-economy. However, we are not quite sure about a “major breakdown of the financial system” (to Ben Bernanke) or the so-called “ monetary shock ” (ubiquitous in macroeconomics). In modern times, as opposed to the Mercantilism era, money is generally endogenous; more specifically, “ money supply ” is the business of “the financial system”; or, it’s the matter of monetary base + credit policy ! Truthfully, the financial system is endogenous of the nation; but it is by conception exogenous to the womb of economics. A lining in the cloud: Macroeconomics is by...