Perspective on the current state of macroeconomic theory (original) (raw)

Macroeconomics Needs Fresh Methodology of Theorization

In this paper, we try to analyze the macroeconomic reasoning in different methodological issues. Subsequently, we try to touch some current macroeconomic debates on aggregations, relations, monetary and real sectors analyses. We assess that, what we know about the behavior of macroeconomic variables is just our understanding from empiricism and we have rarely found the laws of linkages among macroeconomic variables. We also conclude that successive theories have intuitional foundation. It seems that to improve macroeconomic theories and policies, we need to be redirected to basic philosophical thinking about macroeconomic theoretical foundation and try to rebuild a new concrete base for macroeconomics.

The Trouble with Macroeconomics

In the last three decades, the methods and conclusions of macroeconomics have deteriorated to the point that much of the work in this area no longer qualifies as scientific research. The treatment of identification in macroeconomic models is no more credible than in the first generation large Keynesian models, and is worse because it is far more opaque. On simple questions of fact, such as whether the Fed can influence the real fed funds rate, the answers verge on the absurd. The evolution of macroeconomics mirrors developments in string theory from physics, which suggests that they are examples of a general failure mode of for fields of science that rely on mathematical theory in which facts can end up being subordinated to the theoretical preferences of revered leaders. The larger concern is that macroeconomic pseudoscience is undermining the norms of science throughout economics. If so, all of the policy domains that economics touches could lose the accumulation of useful knowledge that characteristic of true science, the greatest human invention.

Is the Fundamental Science of Macroeconomics Sound?

Review of Radical Political Economics, 2011

Recently, Ben Bernanke has argued that in the events leading up to the financial crisis, mistakes were made, but they were primarily engineering or management mistakes, not mistakes in the fundamental science of macroeconomics, which he sees as sound. This paper argues that Bernanke is wrong and that standard macroeconomics has not recognized, and still does not recognize, the limits of science and of formal modeling when studying something as complex as the macro economy. This failure to recognize, and adequately convey to policy makers, the limits of our scientific understanding of the macro economy, has led standard macroeconomics to combine fundamental science and policy applications in ways that undermine both. This paper advocates a classical methodological approach, which Keynes followed as well, that strictly separates fundamental science from policy analysis. Policy does not directly follow from models; it follows from reasoned analysis which uses models, but which combines...

The current state of macroeconomics: A view from the textbooks

Journal of Monetary Economics, 1985

The major exception is Barre's (1984) innovative approach in which the IS/LM framework and the Keynesian model are discussed some 480 pages into the text. I will not discuss Barre's text since a complete review of this text is provided by Siegel (1984).

Why Macroeconomics Does Not Supervene on Microeconomics

Journal of Economic Methodology, 2014

In recent years, the project of providing microeconomic foundations for macroeconomics has taken on new urgency. Some philosophers and economists have challenged the project, both for the way economists actually approach microfoundations and for more general anti-reductionist reasons. Reductionists and anti-reductionists alike, however, have taken it to be trivial that the macroeconomic facts are exhaustively determined by microeconomic ones. In this paper, I challenge this supposed triviality. I argue that macroeconomic properties do not even globally supervene on microeconomic ones. This is simply a consequence of the difference in the explanatory goals of the respective fields, which implicitly carve out the microeconomic property set in such a way that it underdetermines macroeconomic properties. It means, however, that microeconomics-based foundations for macroeconomics are inadequate in principle.

What's Wrong with Modern Macroeconomics? Why its Critics have Missed the Point

2010

This paper argues the case for modern macroeconomics. It explains the reasons why it has replaced previous ways of doing macroeconomics and why it deals with empirical evidence in a different way from conventional econometrics. It is claimed that, far from being in a state of crisis as a result of recent events, modern macroeconomics has received a huge stimulus. The current critics of macroeconomics, like many of those of the past, take its assumptions too literally and misunderstand how the theory should be interpreted for practical use. The financial crisis was brought about more by a failure to employ modern macroeconomics than by its failings. If used sensibly, it will lead us out of the crisis.

The 'modern' view of macroeconomics: some critical reflections

Cambridge Journal of Economics, 2005

Romer has proposed an alternative macroeconomic framework, i.e., the IS-MP-IA model. Its proponents claim that it constitutes a 'modern' view of macroeconomics. We show that the new framework is closely attached to the neoclassical synthesis and, in addition, fails to take account of: (i) the recent empirical evidence on the short-run output-inflation trade-off, (ii) the recent work and evidence on the interdependence of aggregate demand and supply, (iii) the limits of monetary policy and (iv) the consequences for demand-management policy of (i), (ii) and (iii). Once all these aspects are incorporated, we have that short-run stabilization policy is non-neutral in the long run, loanable funds theory becomes irrelevant and aggregate demand becomes the crucial exogenous variable in the short run and, perhaps, also in the long run.

New Directions in Macroeceonomics

International econometric review, 2020

The glaring failure of modern macroeconomics to predict the Global Financial Crisis, and to provide remedies for the Great Recession which followed, has led to renewed interest in alternative approaches to Macroeconomics. There is huge amount of ongoing work aimed at creating a Macroeconomics for the 21 st Century. The task is of the highest priority, as failures of economic theory have led to misery for millions. Wrong measures of GDP, and cost-benefit calculation which fail to account for environmental costs, and prioritize private profits over social welfare, have created a climate catastrophe which threatens to destroy the planet. In accordance with the importance of this task, we are expanding the scope of this journal, to cover all new approaches to economics, which fall outside of the boxes of conventional macro, micro, and econometrics of the 20 th Century. This article outlines seven broad categories of research directions, and four different methodological principles which fall outside the boundaries of the conventional approach, and offer promise for building a Macroeconomics for the 21 st Century. We hope to invite contributions in these areas for future issues.

New Directions in Macroeconomics

Social Science Research Network, 2020

The glaring failure of modern macroeconomics to predict the Global Financial Crisis, and to provide remedies for the Great Recession which followed, has led to renewed interest in alternative approaches to Macroeconomics. There is huge amount of ongoing work aimed at creating a Macroeconomics for the 21 st Century. The task is of the highest priority, as failures of economic theory have led to misery for millions. Wrong measures of GDP, and cost-benefit calculation which fail to account for environmental costs, and prioritize private profits over social welfare, have created a climate catastrophe which threatens to destroy the planet. In accordance with the importance of this task, we are expanding the scope of this journal, to cover all new approaches to economics, which fall outside of the boxes of conventional macro, micro, and econometrics of the 20 th Century. This article outlines seven broad categories of research directions, and four different methodological principles which fall outside the boundaries of the conventional approach, and offer promise for building a Macroeconomics for the 21 st Century. We hope to invite contributions in these areas for future issues.