Noah Smith hits on the truth:
“Now, the big
question is whether faith in monetary policy might have been misplaced. The
seemingly small effects of quantitative easing, and the difficulty of dealing
with very low interest rates, are causing some macroeconomists to cast about
for alternatives to the New Keynesian paradigm.
This illustrates
the real fundamental problem with macroeconomics -- the lack of good evidence.
Business cycles take years, and each one is a bit different from those that
came before, so the number of data points is very small, especially relative to
the enormous complexity of modern theories. Time-series statistics, one of the
core methods of empirical macro, often requires almost as many assumptions as
theory. What’s more, natural experiments -- the lucky accidents that allow
microeconomists to glean facts about cause and effect -- are very rare in
macro. That makes it very hard to test any theory. Evidence does exist in
macro, but it’s thin, subtle and ephemeral. It gently nudges theorists gently
in the direction of the truth, rather than giving them a hard push.”