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Building Economic Models Corresponding to the Real World

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  • Ray Huffaker

Abstract

Increasingly, there are calls to audit models used in public policy for how accurately they portray the reality facing policy makers. Although models cannot be logically verified as accurate representations of reality, past work concludes that modelers can reasonably demonstrate the degree of correspondence. How to establish real-world correspondence remains an open question. This paper outlines a framework of pre-modeling data diagnostics to provide evidence of correspondence. The scheme—based on Nonlinear Time Series Analysis—provides a rigorous benchmark for specification and testing of policy models that reduces the likelihood that a misspecified model is discredited by an unanticipated crisis.

Suggested Citation

  • Ray Huffaker, 2015. "Building Economic Models Corresponding to the Real World," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 37(4), pages 537-552.
    • Handle: RePEc:oup:apecpp:v:37:y:2015:i:4:p:537-552.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppv021
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    References listed on IDEAS

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    1. Huffaker, Ray G., 2010. "Phase Space Reconstruction from Economic Time Series Data: Improving Models of Complex Real-World Dynamic Systems," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 1(3), pages 1-10, October.
    2. Berg, Ernst & Huffaker, Ray, 2015. "Economic Dynamics of the German Hog-Price Cycle," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 6(2), pages 1-17, July.
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    Cited by:

    1. Riley Post & Darren Hudson & Donna Mitchell & Patrick Bell & Arie Perliger & Ryan Williams, 2016. "Rethinking the Water-Food-Climate Nexus and Conflict: An Opportunity Cost Approach," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(4), pages 563-577.

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