tag:blogger.com,1999:blog-2546602206734889307.post3424953254115974743..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Ricardian Equivalence, benchmark models, and academics response to the financial crisisMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-2546602206734889307.post-13151223258416114802017-02-15T09:24:08.392+00:002017-02-15T09:24:08.392+00:00Here the link where one can see how people think a...Here the link where one can see how people think about Ricardian Equivalnece. If we don't know how people think about the problem why not asking them? People do have fears about future taxes (even in a helicopter money treatment), but is seems that this fear does not lead them spend less.<br /><br />https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2893008Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-39339357272554282492017-01-04T18:05:42.828+00:002017-01-04T18:05:42.828+00:00Nice article.....Nice article.....Anonymoushttps://www.blogger.com/profile/09669218726460123514noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-84529052452931180762016-10-25T14:17:17.534+00:002016-10-25T14:17:17.534+00:00Please could you do a comment reply, or ideally a ...Please could you do a comment reply, or ideally a full post, responding to this blogpost: http://econlog.econlib.org/archives/2016/10/two_approaches.html <br /><br />Thanks! Anonymoushttps://www.blogger.com/profile/08752786938554416270noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-37335683273116722562016-10-14T17:01:13.446+00:002016-10-14T17:01:13.446+00:00Data is the result of 'mark to model' poli...Data is the result of 'mark to model' policy making. It records the movements of a man in a straitjacket.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-8266063554157337012016-10-14T12:02:00.887+00:002016-10-14T12:02:00.887+00:00If a debt-financed increase in fiscal spending put...If a debt-financed increase in fiscal spending puts idle resources into use and thus increases tax collection, the spending increase will pay itself back at least in part, and if you take hysteresis effects into account may even pay itself back completely. Why would forward looking rational consumers not be able to figure this out, thinking erroneously instead that the entire spending increase has to be paid back via higher future taxes ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-964855827740079672016-10-13T19:50:44.624+00:002016-10-13T19:50:44.624+00:00Recent DSGE models fit the data very well, but par...Recent DSGE models fit the data very well, but parts of their identifying restrictions are not truly structural (wherever one may really draw the line between reduced form and structural). They e.g. usually include external habit formation in the utility function which helps to smooth the response of consumption to the shocks included in the model. Estimation often results in implausible large values for this parameter clearly pointing to model misspecification. These models are microfounded in this respect but one should not take the implied interpretation too seriously. Still they may very well be used for policy analysis, one just needs to be aware of their weaknesses and consequently for which questions they are suited and for which they are not.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-21331964403857673152016-10-12T17:54:52.386+00:002016-10-12T17:54:52.386+00:00RE could be wrong, but it is not nonsense.
Those ...RE could be wrong, but it is not nonsense.<br /><br />Those models provide hypotheses and they are only interesting for policy purposes to the extent that those hypotheses seem to hold reasonably well. If not, maybe their only use should be to help explain how better models behave.<br /><br />Stiglitz and others should be more careful. Verbal inflation is very real: if you call something average and something good exception, you will be without words come something exceptional. If coherent and formal arguments you can find in graduate textbooks constitute sheer nonsense, how do you qualify the considerably less thoughtful things you hear on TV or read in the newspaper?Stéphanenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-33249300689522442222016-10-12T11:18:41.599+00:002016-10-12T11:18:41.599+00:00And if you read Ricardo's own work on equivale...And if you read Ricardo's own work on equivalence you will find that he too thought it was nonsense that did not describe how real people behaved. He only described the theory to debunk it.Derekhttps://www.blogger.com/profile/06296053477905542366noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11964513588013775252016-10-12T09:08:09.479+00:002016-10-12T09:08:09.479+00:00This comment has been removed by the author.Neil Smithhttps://www.blogger.com/profile/00971527519246706623noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-80947737203878573272016-10-12T08:57:13.848+00:002016-10-12T08:57:13.848+00:00I agree with you that not all models need to be mi...I agree with you that not all models need to be microfounded, especially the type of models you "carry around in your head". I would argue, however, that when thinking about what type of policy response to implement, what goes on "under the hood" of aggregate equations is important. Understanding why Ricardian equivalence does not hold in the data (credit constraints, buffer-stock savings etc) is perhaps the key to finding the right policy response. <br />David Chivershttps://www.blogger.com/profile/04624675446164893647noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-3050154866569648712016-10-12T08:53:58.449+00:002016-10-12T08:53:58.449+00:00I agree with what you say, but why can't credi...I agree with what you say, but why can't credit constraints that negate RE simply be added to DGSE models? If modelled correctly, they would still be micro-founded but would more accurately fit the data. Anonymoushttps://www.blogger.com/profile/08752786938554416270noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60542306656910770612016-10-12T08:44:33.661+00:002016-10-12T08:44:33.661+00:00If RE were true, fiscal consolidation should never...If RE were true, fiscal consolidation should never reduce gdp as the prospect of future tax decreases should lead people to immediately compensate for the consolidation by increasing their private consumption correspondingly. But this has not happened as the second recession after the financial crisis clearly showed.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-79329206947272904202016-10-12T05:37:09.565+00:002016-10-12T05:37:09.565+00:00* SW-L:
"Academics are taught in grad school ...<i>* SW-L:</i><br />"Academics are taught in grad school that all other models are flawed because of the Lucas critique, an argument which *assumes* that your microfounded model is correctly specified"<br /><br />Exactly. The Lucas critique - which was well known before Lucas - is an econometric critique. Consequently, immunity to the critique is not a formal property of a model but an empirical (specification) issue. As indeed Lucas and Sargent conceded back in 1978:..<br /><br />“… the question of whether a particular model is structural is an empirical, not theoretical, one.”<br /><i>[Lucas & Sargent, Boston Fed, 1978]</i><br /><br />I have never understood where the curious belief comes from that Lucasian microfoundations are either necessary or sufficient for immunity from the Lucas critique. Apparently somewhere the Almighty Bob said so, and thus it must be so.<br /><br /><i>* Blanchard:</i><br />"For conditional forecasting, i.e. to look for example at the effects of changes in policy, more structural models are needed, but they must fit the data closely and do not need to be religious about micro foundations."<br /><br />Necessary but obviously not sufficient to fit data In practice DSGEs, even if not religiously microfounded, are overparametrized and rely on de facto free parameters to achieve in sample fit. This leads to the problem (of relying on free parameters) that conditional forecasts will be misleading and generally out-of-sample performance will be poor.<br /><br />Further, to the extent analysis of policy relies on the New CLassical/ policy regimes/rational expectations policy analysis approach it is pretty restrictive. .<br /><br /><i>* Chris Sims:</i><br />"There may be some policy issues where the simple rational expectations policy analysis paradigm – treating policy as given by a rule with deterministic parameters, which are to be changed once and for all, with no one knowing before-hand that the change may occur and no one doubting afterward that the change is permanent – is a useful approximate simplifying assumption. To the extent that the rational expectations literature has led us to suppose that all “real” policy change must fit into this internally inconsistent mold, it is has led us onto sterile ground."Hermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-74044025522695225752016-10-11T23:25:01.291+00:002016-10-11T23:25:01.291+00:00Furthermore the Central Bank in all sovereign juri...Furthermore the Central Bank in all sovereign jurisdictions falls under the definition of control by the Treasury - often de facto by the operation of law (Bernanke: "Our job is to do what Treasury tells us to do"), but also de jure, e.g in the Sterling area HM Treasury actually owns the entire shareholding of the Bank of England. The control model in IFRS 10 is elaborate to try and catch all those little tricks that entities use to avoid having to consolidate accounts and is worth studying to see the various 'Wizard of Oz' methods that control can be imparted even though the public face is supposedly independent.<br /><br />Given the control relationship, consolidated financial statements are entirely appropriate and correct accounting which reveals the essence of the underlying transactions. Therefore in your model you should be able to swap out the detailed entities and replace them with the consolidated entity and nothing about the response should change. If it does then it is likely your model is wrong.<br /><br />In Information Systems this is known as white box and black box testing. With white box you can see the internals and with black box you can't - requiring you to conform to that modules interface in your testing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19373200698582871412016-10-11T19:59:51.485+00:002016-10-11T19:59:51.485+00:00The philips curve and the NAIRU is as close as you...The philips curve and the NAIRU is as close as you can get to religious fundamentalism. It is a crime against humanity to call these science.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31434177849620673432016-10-11T16:08:40.464+00:002016-10-11T16:08:40.464+00:00yes. A survey in Denmark a few years ago asked peo...yes. A survey in Denmark a few years ago asked people if the government was currently running a surplus or a deficit. Only 1 in 3 got it right. A bit hard to square with everyone saving the difference every time the deficit (surplus) went up (down.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-87738322925252522652016-10-11T09:38:06.766+00:002016-10-11T09:38:06.766+00:00Given that Blanchard was one of the twits advocati...Given that Blanchard was one of the twits advocating consolidation / austerity at the height of the crisis, why am I supposed to pay any attention to him? <br /> <br />As for Ricardian equivalence, I go along with Joseph Stiglitz’s take: “Ricardian equivalence is taught in every graduate school in the country. It is also sheer nonsense.”<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com