Publish and Perish: Creative Destruction and Macroeconomic Theory

TL;DR

This paper examines the evolution of macroeconomic theories, highlighting how dominant models have replaced older ones due to shared assumptions rather than empirical validation, and discusses ongoing issues like model equivalence and parameter identification.

Contribution

It challenges the notion that macroeconomic theories are converging towards a unified framework, emphasizing the role of assumptions and illustrating persistent methodological problems.

Findings

Older macroeconomic theories have been replaced by DSGE models due to shared assumptions.

Observational equivalence complicates model identification in macroeconomics.

Persistent issues in macroeconomic modeling include parameter identification and model comparison.

Abstract

A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by 'nature'. As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical software, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.