Wednesday, May 30, 2012

Summner's tunnel vision

Scott Summner is confident if smudge potash uber sillius ass ...but brayers can have truths drifting out of them







 

"   off-the-shelf models are all we need to evaluate aggregate demand problems."

".. There are basically two types of demand-side models

                                           both of which are nearly useless"


"   Some general equilibrium models are used to find which stabilization policy regime is optimal from a welfare perspective."

"  Most of these models assume some sort of wage/price stickiness.  And 100% of the models taken seriously in the real world assume wage/price stickiness. "


" The problem is that there are many types of wage and price stickiness, and many ways of modeling the problem. "

" You can get pretty much whatever policy implication you want with the right set of assumptions."

not bad for a puss wit



  " And then there’s the Lucas Critique. " ya exactly


now comes gibberish....

"  A second type of model tries to show how to best implement a specific type of policy regime, like inflation targeting.  Thus the Taylor Rule is one way of implementing a flexible inflation target.  Unfortunately, these “implementation models” conflict with the EMH—it’s not clear why the central bank wouldn’t just peg the price of a futures contract linked to the goal variable.  This is embarrassing given that they are mostly based on New Keynesian models, which incorporate rational expectations.



" To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior ...."

"there might be a superior target (indeed I suspect a nominal wage target would be superior.)  But it can’t be shown with a model."

"  All we can do is construct a model that has that superiority built in by design"


then he humps his hobby horse:

" once we have decided on a nominal aggregate target, there is no model that can outperform a policy of having the central bank peg the price of futures contract linked to the policy goal. "

which lets him ride into the clover

 "... once you do all that, fiscal policy becomes a fifth wheel"

final advice to big footed things:

." Models are toys to show our students.
  When we face serious real world dilemmas
it’s time to put away the toys ..."

then he jumps in the glacial lake :

"...I do have a model, indeed lots of them.
 They’re just not mathematical models."