The economy as an interactive system: An appraisal of the microfoundations project

Abstract

Several difficulties stand in the way of establishing a structural model of the economy. Notably, for social and practical reasons, the economy cannot be subjected to controlled experiments to establish causal relations true at the economy level. And, because of the theoretical difference between a causal and statistical relation, atheoretical analysis of aggregate data is inadequate for establishing causation. What is more, aggregate data are inherently imprecise, a fact that further aggravates the difficulties in making causal inferences from economic data. The key to the success of macroeconomics is to overcome these difficulties, which make the establishment of causal relations at the economy level problematic.