Recent controversies in neoclassical modelling and developments in Evidence-Driven Policy

Nettleton, SJ

Recent controversies in neoclassical modelling and developments in Evidence-Driven Policy

Nettleton, SJ

Permalink

Publisher:: University of Sydney
Publication Type:: Conference Proceeding
Citation:: 18th International Conference on Input-Output Economics, 2010, pp. 1 - 30
Issue Date:: 2010-01

Open Access

Copyright Clearance Process

Recently Added
In Progress
Open Access

This item is open access.

Adobe PDF

Download full textAdobe PDF (1.15 MB)

View statistics

Full metadata record

Field	Value	Language
dc.contributor.author	Nettleton, SJ https://orcid.org/0000-0002-4360-2445	en_US
dc.contributor.editor	Organising Committee	en_US
dc.date	2010-06-20	en_US
dc.date.issued	2010-01	en_US
dc.identifier.citation	18th International Conference on Input-Output Economics, 2010, pp. 1 - 30	en_US
dc.identifier.uri	http://hdl.handle.net/10453/16503
dc.description.abstract	The use of Computable General Equilibrium modelling in evidence-based policy requires an advanced policy making frame of reference, advanced understanding of neoclassical economics and advanced operations research capabilities. This paper examines developments in the policy making frame of reference. The process of evidence-driven policy places importance on the validation of potential policies using models. At national, bilateral and multilateral levels, policy analysis has increasingly relied on neoclassical computable general equilibrium models having substantial precedence. Bayesian analysis suggests that a policy which survives a validation test using such a model has a much better chance of being successful than a policy that fails such a test. Yet the 2008-9 Global Financial Crisis demonstrated that policies verified with neoclassical models neither predicted the Global Financial Crisis nor were able to address it. Governments across the world used massive Keynesian stimulus to restabilise economies. Neoclassical models became much maligned within Keynesian and behavioural economics circles. This paper investigates the continuing role of neoclassical models in evidence-driven policy with reference to the deductivism of Sir Karl Popper and Thomas Kuhn, inductivism and the controversial objective theory of evidence. While policy making has always been messy, in recent decades policy makers may have succumbed to the human fallibility of justifying pragmatism with simplified ideological paradigms that inappropriately place over-reliance on neoclassical free market mathematical models because these models are self-reinforcing of the ideology. It is concluded that neoclassical models will continue to have a role in testing policies but those features of neoclassical models that led to the failures in understanding the Global Financial Crisis will need to be addressed.	en_US
dc.publisher	University of Sydney	en_US
dc.relation.ispartof	18th International Conference on Input-Output Economics	en_US
dc.relation.ispartof	International Conference on Input-Output Economics	en_US
dc.title	Recent controversies in neoclassical modelling and developments in Evidence-Driven Policy	en_US
dc.type	Conference Proceeding
utslib.location	Sydney, Australia	en_US
utslib.location.activity	Sydney, Australia	en_US
utslib.for	0999 Other Engineering	en_US
dc.location.activity	Sydney, Australia	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Engineering and Information Technology
pubs.organisational-group	/University of Technology Sydney/Faculty of Engineering and Information Technology/School of Systems, Management and Leadership
pubs.organisational-group	/University of Technology Sydney/Students
utslib.copyright.status	open_access
pubs.consider-herdc	true	en_US
pubs.place-of-publication	Sydney, Australia	en_US
pubs.start-date	2010-06-20	en_US

Abstract:

The use of Computable General Equilibrium modelling in evidence-based policy requires an advanced policy making frame of reference, advanced understanding of neoclassical economics and advanced operations research capabilities. This paper examines developments in the policy making frame of reference. The process of evidence-driven policy places importance on the validation of potential policies using models. At national, bilateral and multilateral levels, policy analysis has increasingly relied on neoclassical computable general equilibrium models having substantial precedence. Bayesian analysis suggests that a policy which survives a validation test using such a model has a much better chance of being successful than a policy that fails such a test. Yet the 2008-9 Global Financial Crisis demonstrated that policies verified with neoclassical models neither predicted the Global Financial Crisis nor were able to address it. Governments across the world used massive Keynesian stimulus to restabilise economies. Neoclassical models became much maligned within Keynesian and behavioural economics circles. This paper investigates the continuing role of neoclassical models in evidence-driven policy with reference to the deductivism of Sir Karl Popper and Thomas Kuhn, inductivism and the controversial objective theory of evidence. While policy making has always been messy, in recent decades policy makers may have succumbed to the human fallibility of justifying pragmatism with simplified ideological paradigms that inappropriately place over-reliance on neoclassical free market mathematical models because these models are self-reinforcing of the ideology. It is concluded that neoclassical models will continue to have a role in testing policies but those features of neoclassical models that led to the failures in understanding the Global Financial Crisis will need to be addressed.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/16503