How econometric models help policy makers; theory and practice
AbstractFrisch and Tinbergen founded the standard framework for finding the optimal economic policy by maximizing the welfare function under constraints supplied by the econometric model. Frisch worried about the reliability of the model and Tinbergen thought that it would be too difficult to specify the welfare function. Looking at current practice in Dutch policy making, both worries are relevant but the solutions proposed by the founders are not very helpful. Rather, the solution is found in applying an iterative trial-and-error procedure interfacing between the policy maker and the model-cum-expert system. The main contributions of the standard framework are its useful set of concepts, the famous order condition for a feasible solution, and the clear definition of role models for the two parties in the interaction.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 27.
Date of creation: Feb 2004
Date of revision:
Find related papers by JEL classification:
- C0 - Mathematical and Quantitative Methods - - General
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-14 (All new papers)
- NEP-ECM-2004-03-14 (Econometrics)
- NEP-HPE-2004-03-14 (History & Philosophy of Economics)
- NEP-MAC-2004-03-14 (Macroeconomics)
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