Thursday 27 November 2014

Follow Anything But The Money

In the economic turmoil of the last few years, this blog, along with others, has suggested that those economists involved may not have been quite right, indeed a good many may have been quite wrong.

This article on economic modelling appears to agree with this, if I understand the complex wording correctly.  It is not long but intriguing.  The conclusions are:


Our methodology points out the lack of proper modelling of financial and labour markets in the representative macroeconomic model during the financial crisis, which may help shed light on Ng and Wright’s (2013) results, and suggests that additional work to include more labour and asset market frictions in the models would be especially useful.

Our empirical findings confirm the conventional wisdom that appears in much of the existing literature, indicating that model mis-specification cannot be ignored in policy analyses.

Furthermore, our techniques might prove to be useful more generally to guide researchers in improving their models.


To put it crudely, essentially our financial systems seem to have been based on thinking which claims that the best way to win the lottery is to put in the winning numbers from last week.

In the meantime the blog Financial Crimes on Tuesday 25 November suggests that the National Lottery and Euromillions these days could be a superior way of investing.

1 comment:

  1. "model mis-specification cannot be ignored in policy analyses"

    In other words, the models don't work but we'd like to be paid for improving them however long it takes. Climate models don't work either.