Good theories for better models and policies

D'Elia, Enrico (2021): Good theories for better models and policies.

Abstract

Despite the very strong shocks of the last 15 years, the same paradigm continued to inspire economic policies, which envisages: a single long-term path of development, substantially insensitive to short-term policies; and an economic system composed of almost homogeneous representative agents that react to stimuli in an almost linear way. Policies based on these models can only support, if not amplify, the spontaneous trend of the market and tend to waste huge public resources with inefficient incentive systems. For a sustainable and lasting recovery, it is necessary to adopt a new interpretative paradigm and use different models. The ultra-expansionary monetary policy and the suspension of the Stability and Growth Pact are heading in the right direction, but they are not enough.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Theory; General Equilibrium models; Representative agent; Economic Policy; Incentives; Output Gap; European Fiscal Rules
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents; H - Public Economics > H6 - National Budget, Deficit, and Debt

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