Difficulties in Conducting Empirical Research in Macroeconomics: Evaluating Policies for Economic Growth

This chapter discusses difficulties in conducting empirical research in macroeconomics, especially when evaluating policies for economic growth. There are three macroeconomic phenomena: business cycles (ups and downs along the trend), economic growth (the trend itself), and crises (large negative deviations from the trend). The same policy may affect those three phenomena differently. In an advanced country like Japan, most people are familiar with business cycle policies but do not distinguish a business cycle phenomenon from structural trend growth. This creates difficulties for economic researchers to discuss economic policies for a wide audience. From a methodological perspective, contemporary macroeconomics is often called the dynamic stochastic general equilibriumDynamic Stochastic General Equilibrium (DSGE) (DSGE) analysis. I explain how the macroeconomic empirical results may differ from microeconomic evidence (based on a partial equilibrium analysis) by separately looking at “general equilibrium,” “dynamics,” and “stochastic” natures.