How econometric models help policy makers; theory and practice
Frisch and Tinbergen founded the standard framework for finding the optimal economic policy by maximizing the welfare function under constraints supplied by the econometric model. Frisch worried about the reliability of the model and Tinbergen thought that it would be too difficult to specify the welfare function. Looking at current practice in Dutch policy making, both worries are relevant but the solutions proposed by the founders are not very helpful. Rather, the solution is found in applying an iterative trial-and-error procedure interfacing between the policy maker and the model-cum-expert system. The main contributions of the standard framework are its useful set of concepts, the famous order condition for a feasible solution, and the clear definition of role models for the two parties in the interaction.
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- Wallis, K.F., 1992.
"On Macroeconomic Policy and Macroeconometric Models,"
CEPR Discussion Papers
264, Centre for Economic Policy Research, Research School of Economics, Australian National University.
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- Henk Don, F. J., 1983. "Uncertainty and the vigour of policy : A stronger result," Journal of Economic Dynamics and Control, Elsevier, vol. 6(1), pages 187-191, September.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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