Good theories for better models and policies

Enrico D'Elia

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Economic Theory; General Equilibrium models; Representative agent; Economic Policy; Incentives; Output Gap; European Fiscal Rules (search for similar items in EconPapers)
JEL-codes: B4 D58 H3 H6 (search for similar items in EconPapers)
Date: 2021-02-03
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