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description= 15 posts published by Lars Syll during November 2023;
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e suppose economists do not really think their tractability assumptions make for good and realist models in that case it is certainly a just question to ask for clarification of the ultimate goal of the whole modelling endeavour take for example the ongoing discussion on rational expectations as a modelling assumption in economics those who want to build macroeconomics on microfoundations usually maintain that the only robust policies are those based on rational expectations and representative actors models as yours truly has tried to show in on the use and misuse of theories and models in mainstream economics there is really no support for this conviction at all if microfounded macroeconomics has nothing to say about the real world and the economic problems out there why should we care about it the final court of appeal for macroeconomic models is not if we once we have made our tractability assumptions can manipulate them but the real world and as long as no convincing justification is put forward for how the inferential bridging de facto is made macroeconomic modelbuilding is little more than hand waving that gives us rather a little warrant for making inductive inferences from models to real world target systems if substantive questions about the real world are being posed it is the formalistic mathematical representations utilized to analyze them that have to match reality not the other way around share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky the dangers of too much control 23 nov 2023 at 15 41 posted in statistics econometrics comments off on the dangers of too much control you see it all the time in studies we controlled for and then the list starts the more things you can control for the stronger your study is or at least the stronger your study seems controls give the feeling of specificity of precision but sometimes you can control for too much sometimes you end up controlling for the thing you re trying to measure an example is research around the gender wage gap which tries to control for so many things that it ends up controlling for the thing it s trying to measure take hours worked which is a standard control in some of the more sophisticated wage gap studies women tend to work fewer hours than men if you control for hours worked then some of the gender wage gap vanishes as yglesias wrote it s silly to act like this is just some crazy coincidence women work shorter hours because as a society we hold women to a higher standard of housekeeping and because they tend to be assigned the bulk of childcare responsibilities controlling for hours worked in other words is at least partly controlling for how gender works in our society it s controlling for the thing that you re trying to isolate ezra klein trying to reduce the risk of having established only spurious relations when dealing with observational data statisticians and econometricians standardly add control variables the hope is that one thereby will be able to make more reliable causal inferences but as keynes showed already back in the 1930s when criticizing statistical econometric applications of regression analysis if you do not manage to get hold of all potential confounding factors the model risks producing estimates of the variable of interest that are even worse than models without any control variables at all conclusion think twice before you simply include control variables in your models when i present this argument one or more scholars say but shouldn t i control for everything i can in my regressions if not aren t my coefficients biased due to excluded variables the excluded variable argument only works if you are sure your specification is precisely correct with all variables included but no one can know that with more than a handful of explanatory variables a preferable approach is to separate the observations into meaningful subsets internally compatible statistical regimes if this can t be done then statistical analysis can t be done a researcher claiming that nothing else but the big messy regression is possible because after all some results have to be produced is like a jury that says well the evidence was weak but somebody had to be convicted christopher h achen kitchen sink econometric models are often the result of researchers trying to control for confounding but what they usually haven t understood is that the confounder problem requires a causal solution and not statistical control controlling for everything opens up the risk that we control for collider variables and thereby create back door paths which gives us confounding that wasn t there to begin with share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky scientific fraud 23 nov 2023 at 14 28 posted in varia comments off on scientific fraud in 2022 the u s national institutes of health nih placed a large bet on an experimental drug developed to limit brain damage after strokes the gamble seemed warranted lab studies most by a longtime grantee prominent university of southern california usc neuroscientist berislav zlokovic had generated promising data a small safety study of the drug sponsored by a company zlokovic co founded called zz biotech was also encouraging because of its potential to address an unmet medical need the u s food and drug administration fda gave the compound fast track status with the prospect of accelerated approval and priority review zz biotech says the new trial should start within a few months but a 113 page dossier obtained by science from a small group of whistleblowers paints a less encouraging picture the dossier highlights evidence that dozens of papers from zlokovic s lab including many supporting the idea that the compound was ready for human testing contain seemingly doctored data that suggest scientific misconduct speaking to science anonymously four former members of zlokovic s lab say the anomalies the whistleblowers found are no accident they describe a culture of intimidation in which he regularly pushed them and others in the lab to adjust data two of them said he sometimes had people change lab notebooks after experiments were completed to ensure they only contained the desired results there were clear examples of him instructing people to manipulate data to fit the hypothesis one of the lab members says science share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky busting the natural rate of unemployment myth 23 nov 2023 at 11 22 posted in economics 1 comment almost sixty years ago milton friedman wrote an in famous article arguing that 1 the natural rate of unemployment was independent of monetary policy and that 2 trying to keep the unemployment rate below the natural rate would only give rise to higher and higher inflation the hypothesis has always been controversial and much theoretical and empirical work has questioned the real world relevance of the idea that unemployment is independent of monetary policy and that there is no long run trade off between inflation and unemployment my own view on the subject is that the natural rate hypothesis does not hold water simply because the relations it describes have never actually existed the only thing that amazes yours truly is that although this is pretty common knowledge so called new keynesian macroeconomists still today use it and its cousin the phillips curve as a fundamental building block in their models why because without it new keynesians have to give up their again and again empirically falsified neoclassical view of the long run neutrality of money and the simplistic idea of inflation as an excess demand phenomenon the natural rate hypothesis approach nrh is not only of theoretical interest far from it the real damage done is that policymakers who take decisions based on nrh models systematically implement austerity measures and kill off economic expansion the unnecessary and costly unemployment that this self inflicted and flawed illusion eventuates is something new classical and new keynesian advocates should always be kept accountable for if the nrh and rational expectations are both true simultaneously a plot of decade averages of inflation against unemployment should reveal a vertical line at the natural rate of unemployment this prediction fails dramatically there is no tendency for the points to lie around a vertical line and if anything the long run phillips is upward sloping and closer to being horizontal than vertical since it is unlikely that expectations are systematically biased over decades i conclude that the nrh is false roger farmer share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky new keynesianism more useless than ever 19 nov 2023 at 16 16 posted in economics 4 comments macroeconomic models may be an informative tool for research but if practitioners of new keynesian macroeconomics do not investigate and make an effort to provide a justification for the credibility of the assumptions on which they erect their building it will not fulfil its tasks there is a gap between its aspirations and its accomplishments and without more supportive evidence to substantiate its claims critics will continue to consider its ultimate argument as a mixture of rather unhelpful metaphors and metaphysics maintaining that economics is a science in the true knowledge business yours truly remains a sceptic of the pretences and aspirations of new keynesian macroeconomics so far i cannot really see that it has yielded very much in terms of realistic and relevant economic knowledge keynes basically argued that it was inadmissible to project history on the future consequently an economic policy cannot presuppose that what has worked before will continue to do so in the future that macroeconomic models could get hold of correlations between different variables was not enough if they could not get at the causal structure that generated the data they were not really identified dynamic stochastic general equilibrium dsge macroeconomists including new keynesians have drawn the conclusion that the problem with unstable relations is to construct models with clear microfoundations where forward looking optimizing individuals and robust deep behavioural parameters are seen to be stable even to changes in economic policies as yours truly has argued in a couple of posts e g here and here this however is a dead end here we are getting close to the heart of darkness in new keynesian macroeconomics where new keynesian economists think that they can rigorously deduce the aggregate effects of representative actors with their reductionist microfoundational methodology they have to turn a blind eye to the emergent properties that characterize all open social systems including the economic system the interaction between animal spirits trust confidence institutions etc cannot be deduced or reduced to a question answerable on the individual level macroeconomic structures and phenomena have to be analyzed also on their own terms and although one may easily agree with e g paul krugman s emphasis on simple models the simplifications used may have to be simplifications adequate for macroeconomics and not those adequate for microeconomics in microeconomics we know that aggregation really presupposes homothetic and identical preferences something that almost never exists in real economies the results given by these assumptions are therefore not robust and do not capture the underlying mechanisms at work in any real economy models that are critically based on particular and odd assumptions and are neither robust nor congruent to real world economies are of questionable value even if economies naturally presuppose individuals it does not follow that we can infer or explain macroeconomic phenomena solely from the knowledge of these individuals macroeconomics is to a large extent emergent and cannot be reduced to a simple summation of micro phenomena moreover even these microfoundations aren t immutable the deep parameters of new keynesian dsge models tastes and technology are not really the bedrock of constancy that they believe pretend them to be new keynesian macroeconomists have for years been arguing about the importance of the new classical counter revolution in economics helping to change the way macroeconomics is done today with rational expectations euler equations intertemporal optimization and microfoundations their main critique of new classical macroeconomics is that it didn t incorporate price stickiness into the real business cycles models developed by the new classicals so the new keynesians adopted the methodology suggested by the new classicals and just added price stickiness but does putting a sticky price dsge lipstick on the rbc pig really help it sure doesn t a pig with lipstick is still a pig so i cannot concur with paul krugman mike woodford greg mankiw and other sorta kinda new keynesians when they more or less try to reduce keynesian economics to intertemporal maximization modified with sticky prices share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky causal traps of statistics 19 nov 2023 at 14 47 posted in statistics econometrics comments off on causal traps of statistics statistical reasoning certainly seems paradoxical to most people take for example simpson s paradox from a theoretical perspective it importantly shows that causality can never be reduced to a question of statistics or probabilities unless you are miraculously able to keep constant all other factors that influence the probability of the outcome studied to understand causality we always have to relate it to a specific causal structure statistical correlations are never enough no structure no causality simpson s paradox is an interesting paradox in itself but it can also highlight a deficiency in the traditional statistical econometric approach toward causality say you have 1000 observations on men and an equal amount of observations on women applying for admission to university studies and that 70 of men are admitted but only 30 of women running a logistic regression to find out the odds ratios and probabilities for men and women on admission females seem to be in a less favourable position discriminated against compared to males male odds are 2 33 female odds are 0 43 giving an odds ratio of 5 44 but once we find out that males and females apply to different departments we may well get a simpson s paradox result where males turn out to be discriminated against say 800 males apply for economics studies 680 admitted and 200 for physics studies 20 admitted and 100 female apply for economics studies 90 admitted and 900 for physics studies 210 admitted ...
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