PROBLEMS WITH MODERN ECONOMICS

Kanta Marwah
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Kanta Marwah: Carleton University, Canada

Chapter 36 in Selected Papers of Lawrence R Klein: Theoretical Reflections and Econometric Applications, 1997, pp 631-636 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractModern macroeconomics has become vague, subjective, uncertain, and unhelpful in policy formation, revealing too much faith in automatic corrections of markets. Criticisms can be made, in particular, about the use of rational expectations, principal agent analysis, and monetarism. Modern econometrics can be criticized for diversion of attention away from the central role of statistical specification of the probability distribution of error together with economic specification of structural relationships towards preoccupation with the statistical properties of individual or small subgroups of economic variables, which are the very objects of the whole econometric investigation. The unquestioning reliance on cointegration and lead–lag studies of causations in simple, bivariate relationships have taken attention away from the role of economics in specifying multivariate nonlinear systems. Some comments are made on the use of high-frequency data for improving econometric forecasting. (JEL EO)

Keywords: Macroeconomics: Theory; Policy Formation; Reconsiderations; Macroeconometric Models: Methodology; Forecasting; Debate; Prospects; International Economics: Capital Flows; Exchange Rates; Expectations (search for similar items in EconPapers)
JEL-codes: C1 C7 (search for similar items in EconPapers)
Date: 1997
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