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On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms

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Author Info
Giorgio Fagiolo () (Sant'Anna School of Advanced Studies, Pisa, Italy)
Andrea Roventini () (Università di Verona)

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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 briey 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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Paper provided by Università di Verona, Dipartimento di Scienze economiche in its series Working Papers with number 47.

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Length: 29
Date of creation: May 2008
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Handle: RePEc:ver:wpaper:47

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Related research
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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Find related papers by JEL classification:
B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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