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How econometric models help policy makers; theory and practice


  • Henk Don



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.

Suggested Citation

  • Henk Don, 2004. "How econometric models help policy makers; theory and practice," CPB Discussion Paper 27, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:27

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    References listed on IDEAS

    1. 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.
    2. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
    3. Wallis, Kenneth F, 1993. "On Macroeconomic Policy and Macroeconometric Models," The Economic Record, The Economic Society of Australia, vol. 69(205), pages 113-130, June.
    4. Bray, Jeremy, et al, 1995. "The Interfaces between Policy Makers, Markets and Modellers in the Design of Economic Policy: An Intermodel Comparison," Economic Journal, Royal Economic Society, vol. 105(431), pages 989-1000, July.
    5. 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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    Cited by:

    1. Franses, Philip Hans & Kranendonk, Henk C. & Lanser, Debby, 2011. "One model and various experts: Evaluating Dutch macroeconomic forecasts," International Journal of Forecasting, Elsevier, vol. 27(2), pages 482-495, April.
    2. Peeters, Marga, 2011. "Demographic pressure, excess labour supply and public-private sector employment in Egypt - Modelling labour supply to analyse the response of unemployment, public finances and welfare," MPRA Paper 31101, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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