Theoretical versus atheoretical macroeconomics: Concepts and controversies

Abstract

The study of fluctuations in aggregate measures of economic activity and prices over relatively short periods (business cycle theory) and development of the economy over the long run (growth theory) constitutes what we call macroeconomics. The objective is to understand the causes of economic fluctuations and growth, forecast the future of the economy, and aid analysis of state policies. Following tradition, we may categorize major objectives of macroeconomics under the headings of explanation, forecasting, and policy analysis. These objectives require a quantitative model, which for most purposes must represent the causal structure of the economy. A major issue in macroeconomics is therefore the understanding of the causal structure of the economy.