Blah blah blah economics

12 May, 2017 at 23:05 | Posted in Economics | 1 Comment

A key part of the solution to the identification problem that Lucas and Sargent (1979) seemed to offer was that mathematical deduction could pin down some parameters in a simultaneous system. But solving the identification problem means feeding facts with truth values that can be assessed, yet math cannot establish the truth value of a fact. Never has. Never will.

blah_blahIn practice, what math does is let macroeconomists locate the FWUTVs [facts with unknown truth values] farther away from the discussion of identification … Relying on a micro-foundation lets an author say, “Assume A, assume B, …  blah blah blah …. And so we have proven that P is true. Then the model is identified.” …

Distributional assumptions about error terms are a good place to bury things because hardly anyone pays attention to them. Moreover, if a critic does see that this is the identifying assumption, how can she win an argument about the true expected value the level of aether? If the author can make up an imaginary variable, “because I say so” seems like a pretty convincing answer to any question about its properties.

Paul Romer


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  1. Parameter identification problem is a problem to find an approximate function FUN(t) with FWUTVs for evolving economic time-series data Y(t). However,
    Any Model with FUN(t) ⊨ ¬ Y(t) if Y(t) ≈ FUN(t)
    In order words, any model with this type of approximate function is in fact against economic data reality Y(t) and its components in accounting identities.

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