Heuristic function and explanatory capacity: revisiting Lucas aggregate supply modelling

• Grant number: 22/11025-3
• Support Opportunities: Scholarships in Brazil - Post-Doctoral
• Effective date (Start): July 01, 2023
• Status: Discontinued
• Field of knowledge: Applied Social Sciences - Economics
• Principal Investigator: Pedro Garcia Duarte
• Grantee: Alexandre Müller Fonseca
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated scholarship(s): 24/01346-2 - The resilience of reduction in economics: revising the problem, BE.EP.PD

Abstract

This project has two main goals: (a) to assess the explanatory capacity of mainstream economic models based on a paradigmatic case, which is Robert Lucas's Phillips Curve modelling (1976) and (b) to evaluate the applicability of the so-called quaternary account of explanation to process and analyze the information obtained from that model. In his path-breaking article published in 1976, "Econometric policy evaluation: a critique", Lucas argues that behavioral parameters are sensitive to modifications in the environment, especially from changes in economic policy. Therefore, any model that assumes fixed behavioral parameters under changes in the environment will not capture the effects of the alternative policies on the economy. In the Lucasian Phillips curve, the macroeconomic correlation between output and price level is deduced from the supply function, taking for granted the "deep" parameters of tastes and technology. However, the mere inference of the macroeconomic correlation does not provide the adequate mechanism by which the economist explains and compares different scenarios. More recently, some authors (in particular Reiss, 2013, and Alexandrova & Northcott, 2013) have levelled criticisms toward the explanatory power of such economic models claiming that their unrealism prevents them (i) from tracking actual causal relations and (ii) from isolating the causal gears and cogs of economic cycles, which implies that models cannot serve as tools capable of generating explanations. If this is so, these models would have a mere pedagogical function that allows economists to extract hypotheses that could be formulated according to the quaternary account of explanation, from the philosophy of science literature, in the form of X, rather than X', explains Y rather than Y'. In this project, I intend to evaluate the nature of the role played by the contrastive account in Lucas's model and investigate whether the model itself is capable of generating explanation.