Arnold Kling  

The CBO Has Not Changed Macro Models!

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This is not big news, but Derek Thompson writes as if it is.

The CBO came out today with a new report on the effect of the stimulus, or the American Recovery and Reinvestment Act (ARRA). The conclusion is that the stimulus has had essentially the same impact on GDP and employment as the CBO predicted in March 2009 -- lifting production by between 1 and 3 percent and raising employment by between 0.6 and 1.6 percent.

Back in March, the CBO ran a simulation model of the economy, with and without the stimulus. The difference between the two simulations gives you the predicted increase in employment and GDP.

Recently, the CBO repeated the exercise. Lo and behold, the differences were the same. This says nothing about what happened in the real world. It tells you that the simulation model that they used did not change.

I thought everybody would know this. If you do not understand, feel free to leave a comment. But first read Lecture 13.

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CATEGORIES: Macroeconomics

COMMENTS (3 to date)
david writes:
Josh writes:


The real question here is whether we can believe these forecasts. Over the last 30 years a random walk forecast performs at least as well as these.

Bob Murphy writes:

Great point, Arnold. It always amuses me when people confuse model results with actual observations. Models are fine, but the people using them should be able to step back and distinguish the simulation from the observation.

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