Macroeconomics and Markets in Developing and Emerging Economies by Ashima Goyal

Excerpt

The global financial crisis (GFC), a turning point in world history, has led to a kind of crisis in mainstream macroeconomic theory and necessitated a thorough ‘rethinking’ in economics. Mainstream macroeconomics, dominated by neoclassical thinking has come under scathing criticism for its failure to predict the GFC. But mainstream economists held that shortcomings of economic science were not central to the GFC, and very little change is required in economic theory or general policy framework. GFC has exposed the fault lines in these ‘benign’ theories and propositions and led to greater emphasis being laid on empirical facts than on theory. Although the focus on empirics in macroeconomics and finance was evident from papers published in journals, the GFC strengthened the voices that unduly stressed the deductive approach, thus leading to ‘empiricism’. At one time, it seemed like ‘the end of theory’. Mainstream economists’ refusal to admit the evidence contradicting the theory, and on the other side, undue reliance on some evidence by the critiques of theories might result in either a dogmatic view of development problems or a simplistic distillation of stray facts. …