The possibility of ideological bias in structural macroeconomics models
AbstractThis paper studies the trade-offs that an expert with ideological biases faces in designing his model. I assume the perceived model must be autocoherent, in that its use by all agents delivers a self-concerming equilibrium. The exercise is carried in the context of a simplified AS-AD model, where in principle the expert can influence policy by manipulation six key parameters: the Keynesian multiplier, the interest elasticity of aggregate demand, the response of output to actual and expected inflation in the Phillips curve, and the variances of supply and demand shocks. Typically, a larger reported Keynesian multiplier is favored by more left-wing economists, as is a flatter inflation output trade-off. But an important aspect of the analysis is that autocoherence conditions imply constraints and trade-offs between parameters. For example a larger reported Keynesian multiplier must be associated with a lower interest elasticity of aggregate demand for the economists’s model to match the data. Also, some parameters or some combinations of parameters must be truthfully revealed for the expert to remain autocoherent. These are the parameters that are "identified" from the empirical moments of the distribution of observables. This illustrates the tight link between parameter identification and the scope for bias that is generated by the autocoherence conditions.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8465.
Date of creation: Jul 2011
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Other versions of this item:
- Saint-Paul, Gilles, 2011. "The possibility of ideological bias in structural macroeconomic models," TSE Working Papers 11-245, Toulouse School of Economics (TSE).
- Saint-Paul, Gilles, 2011. "The possibility of ideological bias in structural macroeconomic models," IDEI Working Papers 679, Institut d'Économie Industrielle (IDEI), Toulouse.
- A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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