Good Predictions and Bad Policies
Relatively little has been said on economic policy by participants in the debate on the realisticness of assumptions in economic models. What has been said is that a `Friedmanian´ methodology which accepts unrealistic assumptions and is only concerned with correct predictions is appropriate from the perspective of a practical economist who is in charge of designing policy. This paper tries to show that this is not true. Even if a model provides very accurate predictions of an event, its ability to provide valid explanations is determined by the realisticness of its underlying assumptions. Different assumptions yield different explanations and unrealistic assumptions tend to provide no explanation at all. There is a strong relation between the way a phenomenon is explained and understood and the actions that are consequently recommended. Therefore, a model based on unrealistic assumptions is not a reliable source of advice on policy.
|Date of creation:||05 Nov 2009|
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:col:000089:006148. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Universidad De Los Andes-Cede)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.