Empirical ‘validation’ of macroeconomic models

18 February, 2016 at 15:43 | Posted in Economics | Comments Off on Empirical ‘validation’ of macroeconomic models

Modern macroeconomics is characterised by a search for the microeconomic foundations of macroeconomics, and it follows a very specific path. This search for microeconomic foundations follows a hypothetico-deductive approach … It involves starting with an axiomatic system and deducing conclusions from it …

41Er+GVTF9L._SX329_BO1,204,203,200_The model and the conclusions of the reflection cannot produce predictions that can subsequently be confirmed or refuted. A more flexible approach is needed based on stylised facts that the model must at least partly reproduce …

DSGE models illustrate the dramatic simplification that must be carried out to produce a macroeconomic model, sometimes at the price of having to make assumptions that are so strong as to be absurd …

The empirical validation of these imperfect models provides a perfect illustration of the empirical methodology of macroeconomics … By reproducing a number of stylised facts … the model acquires the status of an applied model … The empirical stage is not a stage of validation through which one might be led to reject a model as being insufficient, but a minor step of choosing the most realistic out of a set of models, although even the most realistic model is not really realistic.

Xavier Timbeau


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