Causality in macroeconomics

"Causality in Macroeconomics is the first book to address the long-standing problems of causality while taking macroeconomics seriously. The practical concerns of the macroeconomist and abstract concerns of the philosopher inform each other. Grounded in pragmatic realism, the book rejects the popular idea that macroeconomics requires micro-foundations and argues that the macroeconomy is a set of structures that are best analyzed causally. Ideas originated by Herbert Simon and the Cowles Commission are refined and generalized to nonlinear systems, particularly to the nonlinear systems with cross-equation restrictions that are ubiquitous in modern macroeconomic models with rational expectations (with and without regime switching). These ideas help to clarify philosophical as well as economic issues. The structural approach to causality is then used to evaluate more familiar approaches to causality developed by Granger, by LeRoy, and by Glymour, Spirtes, Scheines, and Kelly, as well as vector autoregressions, the Lucas critique, and the exogeneity concepts of Engle, Hendry, and Richard. A constructive approach to causal inference based on patterns of stability and instability in the face of identified regime changes is developed and illustrated in two empirical case studies of the causal direction between money and prices and between taxes and spending."--Jacket.