The science of economics has some constraints and tensions that set it
apart from other sciences. One reflection of these constraints and tensions
is that, more than in most other scientific disciplines, it is easy to find
economists of high reputation who disagree strongly with one another
on issues of wide public interest. This may suggest that economics, unlike
most other scientific disciplines, does not really make progress. Its
theories and results seem to come and go, always in hot dispute, rather
than improving over time so as to build an increasing body of knowledge.
There is some truth to this view; there are examples where disputes of earlier
decades have been not so much resolved as replaced by new disputes.
But though economics progresses unevenly, and not even monotonically,
there are some examples of real scientific progress in economics. This essay
describes one — the evolution since around 1950 of our understanding
of how monetary policy is determined and what its effects are. The
story described here is not a simple success story. It describes an ascent
to higher ground, but the ground is still shaky. Part of the purpose of the
essay is to remind readers of how views strongly held in earlier decades
have since been shown to be mistaken. This should encourage continuing
skepticism of consensus views and motivate critics to sharpen their
efforts at looking at new data, or at old data in new ways, and generating
improved theories in the light of what they see.
We will be tracking two interrelated strands of intellectual effort: the
methodology of modeling and inference for economic time series, and the