A compromise between formalism and realism as a way to influence economic policy

M. Bakeev
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M. Bakeev: Centre for the History and Methodology of Economic Science, HSE University, Moscow, Russia

Journal of the New Economic Association, 2022, vol. 57, issue 5, 113-125

Abstract: In this paper, we argue that economics faces two conflicting societal demands. On the one hand, there is a demand for a practical theory that can be successfully used in the framework of economic policy, in solving various applied problems, etc. On the other hand, the established scientific ethos sets high standards for the internal consistency and formalism of the theory, which often limits its realism and practical applicability. As we speculate in this article, based on the history of the post-war macroeconomic mainstream, the most successful schools of thought in terms of policy impact are those that attempt to respond to both of these demands. This is expressed in the choice of a middle, compromise path: the preservation of a formalized abstract core of the theory while introducing modifications that increase its realism. Based on the study of the influence of four schools in macroeconomics, namely, post-war mainstream Keynesianism (so-called "The Neoclassical Synthesis"), monetarism, new classical macroeconomics, and new Keynesian macroeconomics, on US monetary policy, we claim that New Keynesians turned out to be the most influential school, as they managed to combine the standards of formalism and realism as much as possible.

Keywords: formalism; realism; monetary policy; macroeconomics; role of economics (search for similar items in EconPapers)
JEL-codes: A11 A14 B22 B23 B41 N12 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2022:i:57:p:113-125

DOI: 10.31737/2221-2264-2022-57-5-7

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