ISSN (Online) - 2349-8846
-A A +A

Abductive Reasoning in Macroeconomics

Macroeconomic analytical frameworks change with events they are unable to explain. The process is closer to abductive reasoning that is based on both events and analysis, unlike induction which is data-based and deduction where analysis dominates. Abduction reasons backwards from the outcome to deduce the framework with which it is compatible. Therefore, it is useful to study how macroeconomic conceptual frameworks evolve after anomalous outcomes such as crises. The post-crisis churning is assessed from this perspective using criteria such as greater generality, systemic feedback, and structural aspects. Abductive reasoning is also used to extract the structure of aggregate demand and supply consistent with the observed negative correlation inflation and growth in India. If prolonged growth slowdowns do not reduce inflation, it suggests underlying aggregate supply is elastic but volatile, so that supply-side issues, not excess demand, are primary inflation drivers. Monetary and fiscal policy need to focus on elements that reduce costs, while avoiding sharp cuts in aggregate demand.



 

Subscribers please login to access full text of the article.

 

 

Subscribe Now !

Get instant access to the complete EPW archives

New 3-Month Subscription to Digital Archives at just Rs 531 for India and $18 for overseas users.

  Subscribe  

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top