Research / BFI Working PaperJul 01, 2011

Economics and Reality

This paper is a non-technical and somewhat philosophical essay, that seeks to investigate the relationship between economics and reality. More precisely, it asks how reality in the form of empirical evidence does or does not influence economic thinking and theory. In particular, which role do calibration, statistical inference, and structural change play? What is the current state of affairs, what are the successes and failures, what are the challenges? I shall tackle these questions moving from general to specific. For the general perspective, I examine the following four points of view. First, economics is a science. Second, economics is an art. Third, economics is a competition. Forth, economics is politics. I then examine four specific cases for illustration and debate. First, is there a Phillips curve? Second, are prices sticky? Third, does contractionary monetary policy lead to a contraction in output? Forth, what causes business cycles? The general points as well as the specific cases each have their own implication for the central question at hand. Armed with this list of implications, I shall then attempt to draw a summary conclusion and provide an overall answer.

More Research From These Scholars

BFI Working Paper Apr 1, 2011

Bank Finance Versus Bond Finance

Fiorella De Fiore
Topics:  Fiscal Studies, Monetary Policy
BFI Working Paper Dec 13, 2020

Central Bank Digital Currency: When Price and Bank Stability Collide

Linda Schilling, Jesús Fernández-Villaverde, Harald Uhlig
Topics:  Monetary Policy
BFI Working Paper Feb 21, 2022

Cryptocurrencies, Currency Competition, and the Impossible Trinity

Pierpaolo Benigno, Linda M. Schilling, Harald Uhlig
Topics:  Financial Markets