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description= 15 posts published by Lars Syll during January 2014;
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the (273), and (121), that (102), och (52), theory (43), models (43), jan (38), for (36), not (35), this (33), with (33), are (33), som (31), but (31), have (29), 2014 (29), att (26), #comments (23), model (23), people (22), may (21), utility (21), skall (20), they (19), their (19), can (19), more (18), risk (18), time (17), how (17), wealth (17), one (17), some (17), was (17), has (17), dsge (17), mar (16), apr (16), jun (16), posted (16), economists (16), new (16), med (16), jul (15), aug (15), sep (15), oct (15), nov (15), dec (15), feb (15), inte (15), most (15), you (15), from (15), för (14), har (14), wages (14), when (14), unemployment (14), expected (14), calibration (14), only (13), out (13), men (13), 2012 (12), 2013 (12), 2015 (12), 2016 (12), 2017 (12), 2018 (12), 2019 (12), 2020 (12), 2021 (12), 2022 (12), 2023 (12), 2024 (12), 2025 (12), economics (12), det (12), there (12), lars (11), lönebildning (11), arbetslöshet (11), den (11), its (11), real (11), prescott (11), 2011 (10), why (10), ett (10), market (10), world (10), who (10), till (10), would (10), labour (10), over (10), preferences (10), döda (9), off (9), use (9), expectations (9), really (9), very (9), were (9), other (8), like (8), what (8), where (8), just (8), economic (8), which (8), could (8), into (8), general (8), such (8), make (8), way (8), science (7), policy (7), should (7), economy (7), them (7), been (7), tiga (7), tala (7), problem (7), explain (7), also (7), than (7), equilibrium (7), used (7), different (7), assumptions (7), say (7), data (7), our (7), rational (7), stakes (7), aversion (7), view (6), 2026 (6), statistics (6), econometrics (6), will (6), research (6), without (6), nonsense (6), many (6), much (6), sin (6), detta (6), fönster (6), prices (6), money (6), lowering (6), supply (6), wage (6), about (6), indeed (6), because (6), terms (6), made (6), share (6), opens (6), window (6), sargent (6), inference (6), now (5), varia (5), methodology (5), politics (5), 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s see what two eminent econometricians have to say in journal of economic perspective 1996 vol 10 lars peter hansen and james j hickman writes it is only under very special circumstances that a micro parameter such as the inter temporal elasticity of substitution or even a marginal propensity to consume out of income can be plugged into a representative consumer model to produce an empirically concordant aggregate model what credibility should we attach to numbers produced from their computational experiments and why should we use their calibrated models as a basis for serious quantitative policy evaluation there is no filing cabinet full of robust micro estimats ready to use in calibrating dynamic stochastic equilibrium models the justification for what is called calibration is vague and confusing error probabilistic statistician aris spanos in error and inference mayo spanos 2010 p 240 is no less critical given that calibration purposefully foresakes error probabilities and provides no way to assess the reliability of inference how does one assess the adequacy of the calibrated model the idea that it should suffice that a theory is not obscenely at variance with the data sargent 1976 p 233 is to disregard the work that statistical inference can perform in favor of some discretional subjective appraisal it hardly recommends itself as an empirical methodology that lives up to the standards of scientific objectivity and this is the verdict of paul krugman the point is that if you have a conceptual model of some aspect of the world which you know is at best an approximation it s ok to see what that model would say if you tried to make it numerically realistic in some dimensions but doing this gives you very little help in deciding whether you are more or less on the right analytical track i was going to say no help but it is true that a calibration exercise is informative when it fails if there s no way to squeeze the relevant data into your model or the calibrated model makes predictions that you know on other grounds are ludicrous something was gained but no way is calibration a substitute for actual econometrics that tests your view about how the world works in physics it may possibly not be straining credulity too much to model processes as ergodic where time and history do not really matter but in social and historical sciences it is obviously ridiculous if societies and economies were ergodic worlds why do econometricians fervently discuss things such as structural breaks and regime shifts that they do is an indication of the unrealisticness of treating open systems as analyzable with ergodic concepts the future is not reducible to a known set of prospects it is not like sitting at the roulette table and calculating what the future outcomes of spinning the wheel will be reading sargent and other calibrationists one comes to think of robert clower s apt remark that much economics is so far removed from anything that remotely resembles the real world that it s often difficult for economists to take their own subject seriously instead of assuming calibration and rational expectations to be right one ought to confront the hypothesis with the available evidence it is not enough to construct models anyone can construct models to be seriously interesting models have to come with an aim they have to have an intended use if the intention of calibration and rational expectations is to help us explain real economies it has to be evaluated from that perspective a model or hypothesis without a specific applicability is not really deserving our interest to say as edward prescott that one can only test if some theory whether it incorporates rational expectations or for that matter irrational expectations is or is not consistent with observations is not enough without strong evidence all kinds of absurd claims and nonsense may pretend to be science we have to demand more of a justification than this rather watered down version of anything goes when it comes to rationality postulates if one proposes rational expectations one also has to support its underlying assumptions none is given which makes it rather puzzling how rational expectations has become the standard modeling assumption made in much of modern macroeconomics perhaps the reason is as paul krugman has it that economists often mistake beauty clad in impressive looking mathematics for truth but i think prescott s view is also the reason why calibration economists are not particularly interested in empirical examinations of how real choices and decisions are made in real economies in the hands of lucas prescott and sargent rational expectations has been transformed from an in principle testable hypothesis to an irrefutable proposition irrefutable propositions may be comfortable like religious convictions or ideological dogmas but it is not science or as noah smith puts it but ok suppose for a moment just imagine that somewhere on some other planet there was a group of alien macroeconomists who made a bunch of theories that were completely wrong and were not even close to anything that could actually describe the business cycles on that planet and suppose that the hypothetical aliens kept comparing their nonsense theories to data and they kept getting rejected by the data but the aliens still found the nonsense theories very cool and very a priori convincing and they kept at it finding puzzles estimating parameter values making slightly different nonsense models etc in a neverending cycle of brilliant non discovery now tell me in principle how should those aliens tell the difference between their situation and our own that s the question that i think we need to be asking and that a number of people on the periphery of macro are now asking out loud share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky det avreglerade järnvägssystemet har havererat tillsätt en kriskommission 28 jan 2014 at 12 41 posted in politics society 2 comments yours truly har idag tillsammans med bl a jan du rietz sven jernberg och hans albin larsson en artikel i götborgs posten om det svenska järnvägseländet staten har satsat ett par miljarder kronor i dagens penningvärde på att lägga ned och riva banor triangelspår och mötesspår vilket minskat järnvägens kapacitet och gett ett stelt och störningskänsligt trafiksystem det har ihop med ofta misskötta och olämpliga tåg och otillräcklig redundans i tekniska hjälpsystem gett inställda och försenade tåg vilket blir kostsamt för resenärerna näringslivet och samhället alla problem gör dessutom att allt fler kunder flyr tågtrafiken bildandet av trafikverket hotar bli dödsstöten för järnvägen verket har fått ett för en myndighet omöjligt politiskt uppdrag när det gäller att välja mellan väg och järnväg trafikverket har inte heller uppgiften att restaurera järnvägssystemet och saknar dessutom kompetens för detta en kriskommission med extraordinära befogenheter som kan koncentrera sig på järnvägens problem krävs regeringen bör bland annat kalla in experter från fungerande järnvägsländer för att klara en nödvändig omstrukturering av hela järnvägssystemet ode à la patrie 26 jan 2014 at 16 28 posted in varia 2 comments the failure of dsge macroeconomics 24 jan 2014 at 10 56 posted in economics 5 comments as 2014 begins it s clear enough that any theory in which mass unemployment or in the us case withdrawal from the labour force can only occur in the short run is inconsistent with the evidence given that unions are weaker than they have been for a century or so and that severe cuts to social welfare benefits have been imposed in most countries the traditional rightwing explanation that labour market inflexibility arising from minimum wage laws or unions is the cause of unemployment appeals only to ideologues who are unfortunately plentiful after the global financial crisis it became clear that the concessions made by the new keynesians were ill advised in both theoretical and political terms in theoretical terms the dsge models developed during the spurious great moderation were entirely inconsistent with the experience of the new depression the problem was not just a failure of prediction the models simply did not allow for depressions that permanently shift the economy from its previous long term growth path in political terms it turned out that the seeming convergence with the new classical school was an illusion faced with the need to respond to the new depression most of the new classical school retreated to pre keynesian positions based on versions of say s law supply creates its own demand that say himself would have rejected and advocated austerity policies in the face of overwhelming evidence that they were not working relative to dsge the key point is that there is no unique long run equilibrium growth path determined by technology and preferences to which the economy is bound to return in particular the loss of productive capacity skills and so on in the current depression is for all practical purposes permanent but if there is no exogenously determined though maybe still stochastic growth path for the economy economic agents workers and firms can t make the kind of long term plans required of them in standard life cycle models they have to rely on heuristics and rules of thumb this is in my view the most important point made by post keynesians and ignored by old old keynesians john quiggin crooked timber on dsge and the art of using absolutely ridiculous modeling assumptions 23 jan 2014 at 23 08 posted in economics theory of science methodology 4 comments reading some of the comments by noah smith david andolfatto and others on my post why wall street shorts economists and their dsge models i as usual get the feeling that mainstream economists when facing anomalies think that there is always some further technical fix that will get them out of the quagmire but are these elaborations and amendments on something basically wrong really going to solve the problem i doubt it acting like the baker s apprentice who having forgotten to add yeast to the dough throws it into the oven afterwards simply isn t enough when criticizing the basic workhorse dsge model for its inability to explain involuntary unemployment some dsge defenders maintain that later elaborations e g newer search models manage to do just that i strongly disagree one of the more conspicuous problems with those solutions is that they as e g pissarides loss of skill during unemployment and the persistence of unemployment shocks qje 1992 are as a rule constructed without seriously trying to warrant that the model immanent assumptions and results are applicable in the real world external validity is more or less a non existent problematique sacrificed on the altar of model derivations this is not by chance for how could one even imagine to empirically test assumptions such as pissarides model 1 assumptions of reality being adequately represented by two overlapping generations of fixed size wages determined by nash bargaining actors maximizing expected utility endogenous job openings jobmatching describable by a probability distribution without coming to the conclusion that this is in terms of realism and relevance nothing but nonsense on stilts the whole strategy reminds me not so little of the following little tale time after time you hear people speaking in baffled terms about mathematical models that somehow didn t warn us in time that were too complicated to understand and so on if you have somehow missed such public displays of throwing the model and quants under the bus stay tuned below for examples but this is far from the case most of the really enormous failures of models are explained by people lying a common response to these problems is to call for those models to be revamped to add features that will cover previously unforeseen issues and generally speaking to make them more complex for a person like myself who gets paid to fix the model it s tempting to do just that to assume the role of the hero who is going to set everything right with a few brilliant ideas and some excellent training data unfortunately reality is staring me in the face and it s telling me that we don t need more complicated models if i go to the trouble of fixing up a model say by adding counterparty risk considerations then i m implicitly assuming the problem with the existing models is that they re being used honestly but aren t mathematically up to the task if we replace okay models with more complicated models as many people are suggesting we do without first addressing the lying problem it will only allow people to lie even more this is because the complexity of a model itself is an obstacle to understanding its results and more complex models allow more manipulation i used to work at riskmetrics where i saw first hand how people lie with risk models but that s not the only thing i worked on i also helped out building an analytical wealth management product this software was sold to banks and was used by professional wealth managers to help people usually rich people but not mega rich people plan for retirement we had a bunch of bells and whistles in the software to impress the clients monte carlo simulations fancy optimization tools and more but in the end the bank s and their wealth managers put in their own market assumptions when they used it specifically they put in the forecast market growth for stocks bonds alternative investing etc as well as the assumed volatility of those categories and indeed the entire covariance matrix representing how correlated the market constituents are to each other the result is this no matter how honest i would try to be with my modeling i had no way of preventing the model from being misused and misleading to the clients and it was indeed misused wealth managers put in absolutely ridiculous assumptions of fantastic returns with vanishingly small risk cathy o neil soros the theory of reflexivity 23 jan 2014 at 10 17 posted in theory of science methodology 2 comments the journal of economic methodology has published a special issue on the theory of reflexivity developed by george soros the issue includes a new article by soros and responses and critiques from 18 leading scholars in economics and the history and philosophy of science the issue can be accessed free of charge here why wall street shorts economists and their dsge models 22 jan 2014 at 11 15 posted in economics 34 comments blogger noah smith recently did an informal survey to find out if financial firms actually use the dynamic stochastic general equilibrium models that encapsulate the dominant thinking about how the economy works the result some do pay a little attention because they want to predict the actions of central banks that use the models in their investing however very few wall street firms find the dsge models useful this sho...
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