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Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics

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  • David Colander

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Abstract

This paper argues that the DSGE approach to macroeconometrics is the dominant approach because it meets the institutional needs of the replicator dynamics of the profession, not because it is necessarily the best way to do macroeconometrics. It further argues that this “DSGE-theory first” approach is inconsistent with the historical approach that economists have advocated in the past and that the alternative European CVAR approach is much more consistent with economist’s historically used methodology, correctly understood. However, because the European CVAR approach requires explicit researcher judgment, it does not do well in the replicator dynamics of the profession. The paper concludes with the suggestion that there should be an increase in dialog between the two approaches.

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File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0912.pdf
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Bibliographic Info

Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0912.

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Length: 22 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:mdl:mdlpap:0912

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Keywords: methodology; macroeconometrics; general to specific; DSGE; VAR; judgment; incentives;

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  1. Ellen R. McGrattan & Patrick J. Kehoe & V. V. Chari, 2008. "New Keynesian models: not yet useful for policy analysis," Working Papers 664, Federal Reserve Bank of Minneapolis.
  2. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521865487.
  3. Colander, David, 2003. "The Aging of an Economist," Journal of the History of Economic Thought, Cambridge University Press, vol. 25(02), pages 157-176, June.
  4. Kevin D. Hoover & Soren Johansen & Katarina Juselius, 2008. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," American Economic Review, American Economic Association, vol. 98(2), pages 251-55, May.
  5. Michael Woodford, 2009. "Convergence in Macroeconomics: Elements of the New Synthesis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 267-79, January.
  6. David COlander, 2009. "What Was “It” that Robbins Was Defining?," Middlebury College Working Paper Series 0914, Middlebury College, Department of Economics.
  7. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-48.
  8. Patrick Kehoe & Varadarajan V. Chari, 2006. "Modern Macroeconomics in Practice: How Theory is Shaping Policy," NBER Working Papers 12476, National Bureau of Economic Research, Inc.
  9. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521684200.
  10. David Colander & Peter Howitt & Alan Kirman & Axel Leijonhufvud & Perry Mehrling, 2008. "Beyond DSGE Models: Toward an Empirically Based Macroeconomics," American Economic Review, American Economic Association, vol. 98(2), pages 236-40, May.
  11. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, September.
  12. Dewald, William G & Thursby, Jerry G & Anderson, Richard G, 1986. "Replication in Empirical Economics: The Journal of Money, Credit and Banking Project," American Economic Review, American Economic Association, vol. 76(4), pages 587-603, September.
  13. Peter N. Ireland, 1999. "A Method for Taking Models to the Data," Boston College Working Papers in Economics 421, Boston College Department of Economics.
  14. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December.
  15. Walker,Donald A., 2006. "Walrasian Economics," Cambridge Books, Cambridge University Press, number 9780521858557.
  16. Keynes, John Neville, 1890. "The Scope and Method of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 4, number keynes1890.
  17. Spanos, Aris, 2009. "The Pre-Eminence of Theory versus the European CVAR Perspective in Macroeconometric Modeling," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(10), pages 1-14.
  18. David Colander, 2009. "How Did Macro Theory Get So Far off Track, and what Can Heterodox Macroeconomists Do to Get it Back On Track?," Middlebury College Working Paper Series 0911, Middlebury College, Department of Economics.
  19. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
  20. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers 838, Board of Governors of the Federal Reserve System (U.S.).
  21. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics
    by Christian Zimmermann in NEP-DGE blog on 2009-10-26 00:44:43
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Cited by:
  1. David Colander, 2010. "The Economics Profession, the Financial Crisis, and Method," Middlebury College Working Paper Series 1038, Middlebury College, Department of Economics.
  2. Katarina Juselius, 2009. "Time to reject the privileging of economic theory over empirical evidence? A Reply to Lawson (2009)," Discussion Papers 09-16, University of Copenhagen. Department of Economics.
  3. Spanos, Aris, 2009. "The Pre-Eminence of Theory versus the European CVAR Perspective in Macroeconometric Modeling," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(10), pages 1-14.

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