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Friedman, Becker, and Klein on statistical illusions: Devising criteria to judge the performance of large-scale macroeconometric models

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  • Erich Pinzón-Fuchs

    (Universidad Nacional de Colombia)

Abstract

In 1957, Milton Friedman and Gary S. Becker accused Keynesian modelers of falling into a statistical illusion based on their inappropriate treatment of the consumption function and their inability to yield accurate predictions of income. However, despite their criticism, Friedman and Becker (1957), albeit unconsciously, significantly contributed to Keynesian large-scale macroeconometric modelling, anticipating both the dissemination of a method to evaluate model performance and the important role that dynamics would play in the construction of these models. This method was full model simulation, later routinized as computer dynamic simulation. Here, I provide an account of the early discussions on the evaluation of the performance of macroeconometric models and how ideas about dynamics entered the discussion of macroeconometric modelling.

Suggested Citation

  • Erich Pinzón-Fuchs, 2023. "Friedman, Becker, and Klein on statistical illusions: Devising criteria to judge the performance of large-scale macroeconometric models," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 98, pages 131-165, January-J.
    • Handle: RePEc:lde:journl:y:2023:i:98:p:131-165
    DOI: 10.17533/udea.le.n98a349111
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    Keywords

    History of macroeconomics; history of econometrics; computer dynamic simulation; large-scale macroeconometric modelling; Lawrence R. Klein; Milton Friedman;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General

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