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Is the study of business-cycle fluctuations 'scientific'?

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  • Edouard Challe

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

The study of macroeconomic fluctuations assumes that the behavior of the whole (aggregates) cannot be reduced to the sum of the parts (agents, markets). This is because interdependencies between markets can substantially amplify, or on the contrary dampen, shocks that at any time disturb the equilibrium. The understanding of general-equilibrium effects, on which direct evidence is limited, which are empirically blurred by multiple potential confounding factors, and for which controlled experiments are almost impossible to design, is necessarily more conjectural than the study of individual behavior or of a specific market. However, ignoring these effects because they do not have the same degree of empirical certainty as a directly observed microeconomic effect can lead to serious policy mistakes.

Suggested Citation

  • Edouard Challe, 2018. "Is the study of business-cycle fluctuations 'scientific'?," SciencePo Working papers Main hal-03389352, HAL.
    • Handle: RePEc:hal:spmain:hal-03389352
    DOI: 10.3917/reof.157.0151
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03389352
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    Keywords

    Theory of fluctuations; General equilibrium; Fiscal multipliers;
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