[original post removed]
Has it ever worked?
The blow-up over the Reinhart-Rogoff results reminds me of a point I’ve been meaning to make about our ability to use empirical methods to make progress in macroeconomics…it’s about the quantity and quality of the data we use to draw important conclusions in macroeconomics. Everybody has been highly critical of theoretical macroeconomic models, DSGE models in particular, and for good reason. But the imaginative construction of theoretical models is not the biggest problem in macro – we can build reasonable models to explain just about anything. The biggest problem in macroeconomics is the inability of econometricians of all flavors (classical, Bayesian) to definitively choose one model over another, i.e. to sort between these imaginative constructions. We like to think or ourselves as scientists, but if data can’t settle our theoretical disputes – and it doesn’t appear that it can – then our claim for scientific validity has little or no merit.
^ Two words. Sheldon Cooper.
every model is based on people making rational decisions. i don’t know many people who make rational decisions. we need more models that capture chaos. again, those models would have their shortcomings.
Gotta agree with MLA here. When I first read it, it reminded me of when I was coming out of school, very naive. People much smarter than you are not able to decide on models because by definition every model is flawed and frankly the model subject is far too messy and complex to fit any one mold. It’s all situation dependent and at the end of the day you get the feeling you’re just fitting explanations to randomness.