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Lucas roundtable: Ask the right questions | Free exchange | Economist.com
But all the tools in the world are useless if we lack the imagination needed to build the right models. Models are built to answer specific questions.
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We need to take a close look at how the sociology of our profession led to an outcome where people were made to feel embarrassed for even asking certain types of questions. People will always be passionate in defense of their life's work, so it's not the rhetoric itself that is of concern, the problem comes when factors such as ideology or control of journals and other outlets for the dissemination of research stand in the way of promising alternative lines of inquiry.
I don't know for sure the extent to which the ability of a small number of people in the field to control the academic discourse led to a concentration of power that stood in the way of alternative lines of investigation, or the extent to which the ideology that markets prices always tend to move toward their long-run equilibrium values caused us to ignore voices that foresaw the developing bubble and coming crisis. But something caused most of us to ask the wrong questions, and to dismiss the people who got it right, and I think one of our first orders of business is to understand how and why that happened.
The Failure of Macroeconomics « ThinkMarkets
it is not simply a matter of finding the right explanation of the recent financial meltdown and recession. The search by most macroeconomists is constrained by a certain set of unquestioned methodological precepts. These precepts go to the heart of the conception of Economics as a Science.
Beating The Radar: Getting A Jump On Storm Prediction
By running high-speed five-minute satellite scans through a carefully designed computer algorithm, the scientists can quickly analyze cloud top temperature changes to look for signs of storm formation.
SSRN-Networks in Finance by Franklin Allen, Ana Babus
Modern financial systems exhibit a high degree of interdependence. There are different possible sources of connections between financial institutions, stemming from both the asset and the liability side of their balance sheet. For instance, banks are directly connected through mutual exposures acquired on the interbank market. Likewise, holding similar portfolios or sharing the same mass of depositors creates indirect linkages between financial institutions. Broadly understood as a collection of nodes and links between nodes, networks can be a useful representation of financial systems.
Angry Bear: Background on "fresh water" and "salt water" macroeconomics
fresh-water=chicago school free-marketers, salt-water=coastal schools that question models.
Science News / Cooling Climate ‘consensus’ Of 1970s Never Was
When global warming skeptics draw misleading comparisons between scientists’ nascent understanding of climate processes in the 1970s and their level of knowledge today, “it’s absolute nonsense,” Schneider says. Back then, scientists were just beginning to study climate trends and their causes, and the probability of finding evidence to disprove a particular hypothesis was relatively high. Nowadays, he contends, “the likelihood of new evidence to overthrow the concept of global warming is small. Warming is virtually certain.”
Economist's View: Macroeconomic Models and Monetary Policy
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There is quite a bit of research on
monetary policy that is devoted to the issues he is worried about, particularly the literature on adaptive learning. See
here, and some of his publications
here for
and example from a European central bank. These ideas are also well-known and of considerable interest to
the US Fed, e.g. one example is
here, but there are many
more.
Some of the recent
work of Chris Sims is also of interest in this regard:...Most recently, theories that postulate deviations from the assumption of
rational, computationally unconstrained agents have drawn attention. One branch
of such thinking is in the behavioral economics literature (Laibson, 1997;
Benabou and Tirole, 2001; Gul and Pesendorfer, 2001, e.g.), another in the
learning literature (Sargent, 1993; Evans and Honkapohja, 2001, e.g.), another
in the robust control literature (Giannoni, 1999; Hansen and Sargent, 2001;
Onatski and Stock, 1999, e.g.).This paper suggests yet another direction for deviation from the seamless
model, based on the idea that individual people have limited capacity for
processing information. That people have limited information-processing capacity
should not be controversial. It accords with ordinary experience, as do the
basic ideas of the behavioral, learning, and robust control literatures. The
limited information-processing capacity idea is particularly appealing, though,
for two reasons. It accounts for a wide range of observations with a relatively
simple single mechanism. And, by exploiting ideas from the engineering theory of
coding, it arrives at predictions that do not depend on the details of how
information is processed.
How to Save the World
Business Risk, Prediction Markets, Sustainability, Resilience, And The Wisdom Of Crowds
Why it is hard to share the wealth - fundamentals - 12 March 2005 - New Scientist
This, along with research data from other countries, suggests that there are two economic classes. In one, the rich grow richer while in the other the poor stay poor.
Good Math, Bad Math : Using Bad Math to Create Bad Models to Produce Bad Results
modeling evolution as a search of a fitness landscape. It's pretty common to model evolution that way but it is worth pointing out that while search is a useful model of evolution, it's far from a perfect o
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