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Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics

  • David Colander


This paper argues that the DSGE approach to macroeconometrics is the dominant approach because it meets the institutional needs of the replicator dynamics of the profession, not because it is necessarily the best way to do macroeconometrics. It further argues that this “DSGE-theory first” approach is inconsistent with the historical approach that economists have advocated in the past and that the alternative European CVAR approach is much more consistent with economist’s historically used methodology, correctly understood. However, because the European CVAR approach requires explicit researcher judgment, it does not do well in the replicator dynamics of the profession. The paper concludes with the suggestion that there should be an increase in dialog between the two approaches.

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Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0912.

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Length: 22 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:mdl:mdlpap:0912
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  1. Ellen R. McGrattan & Patrick J. Kehoe & V. V. Chari, 2008. "New Keynesian models: not yet useful for policy analysis," Working Papers 664, Federal Reserve Bank of Minneapolis.
  2. Colander, David, 2009. "What Was “It” That Robbins Was Defining?," Journal of the History of Economic Thought, Cambridge University Press, vol. 31(04), pages 437-448, December.
  3. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers 838, Board of Governors of the Federal Reserve System (U.S.).
  4. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
  5. Kevin D. Hoover & Katarina Juselius & Søren Johansen, 2007. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," Discussion Papers 07-35, University of Copenhagen. Department of Economics.
  6. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-48.
  7. David Colander, 2003. "The Aging of an Economist," Middlebury College Working Paper Series 0304, Middlebury College, Department of Economics.
  8. V. V. Chari & Patrick J. Kehoe, 2006. "Modern macroeconomics in practice: how theory is shaping policy," Staff Report 376, Federal Reserve Bank of Minneapolis.
  9. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521865487, October.
  10. M. Woodford., 2010. "Convergence in Macroeconomics: Elements of the New Synthesis," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
  11. Dewald, William G & Thursby, Jerry G & Anderson, Richard G, 1986. "Replication in Empirical Economics: The Journal of Money, Credit and Banking Project," American Economic Review, American Economic Association, vol. 76(4), pages 587-603, September.
  12. Peter Ireland, 1999. "A Method for Taking Models to the Data," Computing in Economics and Finance 1999 1233, Society for Computational Economics.
  13. David Colander (ed.), 2000. "The Complexity Vision and the Teaching of Economics," Books, Edward Elgar, number 1955, April.
  14. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521684200, October.
  15. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
  16. David Colander, 2009. "How Did Macro Theory Get So Far off Track, and what Can Heterodox Macroeconomists Do to Get it Back On Track?," Middlebury College Working Paper Series 0911, Middlebury College, Department of Economics.
  17. David Colander & Peter Howitt & Alan Kirman & Axel Leijonhufvud & Perry Mehrling, 2008. "Beyond DSGE Models: Toward an Empirically Based Macroeconomics," American Economic Review, American Economic Association, vol. 98(2), pages 236-40, May.
  18. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December.
  19. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
  20. Spanos, Aris, 2009. "The Pre-Eminence of Theory versus the European CVAR Perspective in Macroeconometric Modeling," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3, pages 1-14.
  21. Keynes, John Neville, 1890. "The Scope and Method of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 4, number keynes1890.
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