Summary and Conclusion

Abstract

In this study we consider the problem of explaining a number of aspects of aggregate business behaviour from a small number of basic assumptions, derived from the neoclassical tradition. Attention focusses on the determinants of aggregate investment, employment, output, output prices and the utilization rates of the production factors. In chapter one this approach is compared with two alternatives, that differ in the assumptions about the objective function and the available information. The use of certain maintained hypotheses in each of these approaches leads to a classification in terms of ‘research programmes’ and we discuss the criteria that successive theories within such a programme should fulfill. The main condition is that of ‘excess empirical content’ in comparison with their predecessors. The additional restrictions on observable events that are entailed in this additional content serve to make these new models independently testable, which provides a standard by which we can measure the amount of new information obtained about the relations between economic variables and a safeguard against ad-hoc model building. It is argued that much empirical model building in economics does not fit in this sequential framework as the next step in a research programme but is mainly observational in nature.