On Macroeconometric Models

Arnold Kling

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My latest essay.

the Congressional Budget Office can reasonably estimate the effect of economic and policy scenarios on components of the government's budget, including taxes and spending. However, it cannot reasonably estimate the effect of tax and spending changes on the overall economy. The CBO adds value to policy makers by "scoring" the impact of policies on the budget. However, the "scoring" of policies in terms of GDP growth or jobs saved is of no value. The CBO should simply refuse to do it, and the consulting firms that purport to provide such estimates should be regarded as the charlatans they are.

My "science of hubris" paper gets into more detail. However, it is still difficult to obtain (although I recommend subscribing to Critical Review). But the essay linked above sketches some of the important problems with macroeconometric models.

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CATEGORIES: Economic Methods , Macroeconomics

COMMENTS (6 to date)

Latest Comment

Alex Godofsky writes:

Given that the Congressional Budget Office works for Congress I don't think there are any reasonable grounds on which they should "refuse to do it".

Posted September 19, 2011 11:01 AM

Lord writes:

Is there any greater hubris than assuming the unknown is unknowable?

Posted September 19, 2011 2:00 PM

bill shoe writes:

That was a really nice quality essay. Thanks.

Posted September 19, 2011 3:29 PM

Charles R. Williams writes:

I was in business school (Chicago) in the late 70s. The general attitude of the faculty was that macroeconomic models had no predictive power and were methodologically suspect. I agreed and nothing has happened to change that. It surprises me to see that there is any interest today in a question that was settled 30 years ago.

Posted September 20, 2011 7:08 AM

fundamentalist writes:

I have been reading your article in Critical Review and it is great!

It's so sad to see undergraduate degrees in economics include more math and econometrics and less history.

Posted September 20, 2011 9:14 AM

WhiskeyJim writes:

Private industry spends a great deal of time arranging marketing, advertising and sales campaigns so they are measurable.

It would be simple enough to do the same with policies and stimulus. Is the fact that stimulus packages can not be measured a feature rather than a bug?

Posted September 20, 2011 11:07 AM

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