For me, it's hard not to read this (from Noah Smith):
But the real reason you have this tradeoff is because you have big huge unchallenged assumptions in the background governing your entire model-making process. By focusing on norms you ignore production costs, consumption utility, etc. You can tinker with the silly curve-fitting assumptions in the macro model all you like, but it won't do you any good, because you're using the wrong kind of model in the first place.So when we see this kind of tradeoff popping up a lot, I think it's a sign that there are some big deep problems with the modeling framework. [Emphasis in original]
And think of this (from me):
Do we really know [that macroeconomics is the result of a whole bunch of little economic decisions by individuals and companies]? For a fact? To be specific, I'm not questioning the idea that an economy is made up of humans making decisions with money (of course it is) -- I'm questioning the idea that observed macroeconomic relationships (price level and money supply, RGDP and employment) are the result of humans making decisions with money.
There's a lot more on that front in the information transfer framework: utility maximization, Euler equations, price stickiness ... even money itself. It is possible that our decisions have only a limited impact most of the time. And when our decisions matter, it's mostly for the worse.
Jason, I knew you'd notice that post from Noah (I left you a comment about the one from Cochrane).ReplyDelete
Noah even used the "modeling framework" terminology, which I don't see on the usual blogs I visit (except here of course).
Hilarious flow diagram BTW.
Ha. Very funny diagram. Very early on, in consulting, you realize that the solution to every question is almost always more consulting.ReplyDelete
In an attempt to stir the pot,
perhaps this explains the "the ghost of vanishing quantities" (comments) mentioned in some of these posts.
I don't know you mean by "the ghost of vanishing quantities." By "some of these posts" you mean comments to Jason's posts here?
Sorry, It was tongue in cheek. I was making a reference to the instances in which the posts in this blog mention noah deleting comments.
The "vanishing quantities" is a nod to bishop Berkeley.
It was a poor attempt at some comedic relief, by implying that the reason for the deleted comments is plagiarism.
Lol... thanks. Yeah, you were a few layers deeper than I was on that. I had to look up bishop Berkeley too. I learned something though. (c:Delete
Ha! Funny :)Delete
Off topic, but your prediction about Canada experiencing a slowdown (too lazy to look it up) is very on point! Canada officially considered in recession as of 5 hrs ago...ReplyDelete
This is the most recent post on the Canada model:
I actually have a draft post that I wrote up on the plane last week about Nick Rowe's question about why inflation targeting averted a recession in 1996 vs 2008 (and I guess now 2015). I'll see if I can get some time to finish it up later today.
But the key thing is that as time goes on the max achievable inflation rate falls. If your target is below that, you won't have recessions with inflation targeting. If your target is above -- or close to -- the max (as it is today and was in 2008), inflation targeting won't avert recessions.
I wouldn't say I predicted a recession in 2015 itself, I only predicted that inflation targeting wouldn't avert a recession (or mitigate it as effectively).
Jason, are you familiar with this "machine learning" topic Noah brings up here?:Delete
What's your opinion?
Actually, I am:Delete