2008/03 | LEM Working Paper Series | |
On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms |
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Giorgio Fagiolo, Andrea Roventini |
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Keywords | ||
Economic Policy, Monetary Policy, New Neoclassical
Synthesis, New Keynesian Models, DSGE Models, Agent-Based
Computational Economics, Agent-Based Models, Post-Walrasian
Macroeconomics, Evolutionary Economics.
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JEL Classifications | ||
B41, B50, E32, E52.
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Abstract | ||
In the last years, a number of contributions has argued that
monetary -- and, more generally, economic -- policy is finally
becoming more of a science. According to these authors, policy rules
implemented by central banks are nowadays well supported by a
theoretical framework (the New Neoclassical Synthesis) upon which a
general consensus has emerged in the economic profession. In other
words, scientific discussion on economic policy seems to be
ultimately confined to either fine-tuning this "consensus" model, or
assessing the extent to which "elements of art" still exist in the
conduct of monetary policy. In this paper, we present a
substantially opposite view, rooted in a critical discussion of the
theoretical, empirical and political-economy pitfalls of the
neoclassical approach to policy analysis. Our discussion indicates
that we are still far from building a science of economic policy. We
suggest that a more fruitful research avenue to pursue is to explore
alternative theoretical paradigms, which can escape the strong
theoretical requirements of neoclassical models (e.g., equilibrium,
rationality, etc.). We briefly introduce one of the most successful
alternative research projects -- known in the literature as
agent-based computational economics (ACE) -- and we present the way
it has been applied to policy analysis issues. We conclude by
discussing the methodological status of ACE, as well as the (many)
problems it raises.
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