From realism to instrumentalism - and back? Methodological implications of changes in the epistemology of economics

We identify epistemological shifts in economics throughout the 20th century and discuss their methodological implications. After the realist research program of the Cowles commission and Lucas' rational expectations approach, several economists became dissatisfied with economic theory and initiated a shift towards instrumentalism. Recently, this movement has come under critique and a return to a realist epistemology focusing on identifying economic mechanisms is suggested. Such epistemological changes have important practical implications: they affect the discrimination among competing explanations and determine which research methods are accepted. We illustrate this by studying epistemological and methodological changes in development economics throughout the last century