| > This is such an odd way to demonstrate results about a model. For hypothesis testing or preliminary research, sure. But as a result? So these are typically some combination of dynamic and stochastic difference equations that are supposed to mimic the real economy and may not have any analytical solution. The goal is to include different types of shocks, different inputs, and different functional forms and run simulations to see if the output shows the same patterns as the real economy. What we tend to find in these models is that we can easily get some of the characteristics to match while others do not: i.e. matching the volatility in unemployment while also matching the volatility in wages, output, consumption, etc. This is more along the lines of trying to be engineers rather than mathematicians. Which I'm fine with. My issue is (1) the supposed relationships we are trying to match are not guaranteed across nations or time. Thus even if the model is describing a certain period of time very accurately, it isn't useful at all in general. And (2) we take these models and get the resulting parameter values from the simulation that is at best good at describing some of the stuff happening in the economy and treat them like they apply to the real world (an example parameter might be the risk aversion of consumers in the economy). We then use these parameters to describe what changes should be made to the economy in the event of certain types of shocks. And if I'm being honest, my biggest complaint for these models stems from the idea that they all need magical micro-foundations in order to be considered realistic. This stems from the Lucas Critique and is likely the biggest travesty of economics in its history as a science. It is along the lines of saying general relativity isn't realistic, because it needs to be built using quantum mechanics. What absolutely kills me is that many economists obviously compartmentalize academic research from what they suggest doing in the real world (this can be seen by the fact that the majority of economists polled supported the stimulus in the U.S., felt that it helped recovery from the recession, or at least kept it from getting worse). |