A First Lesson in Econometrics (1970) [pdf](uibk.ac.at)
uibk.ac.at
A First Lesson in Econometrics (1970) [pdf]
https://www.uibk.ac.at/econometrics/lit/siegfried_jpe_70.pdf
9 comments
This was made me laugh. So many times I read ‘it should then be obvious that…’ What the?! No it isn’t. Text book authors must hate students.
My monetary economics professor in grad school was teaching a paper and told us that when the authors claim it's obvious, that means it's not obvious. So he wrote out the derivation over the weekend and gave us a four-page, single-spaced handout with all the equations behind that single "obvious" result.
This is way off topic but hopefully it will get allowed because I think you have the expertise to help:
It seems to me that the widely accepted practice of market stimulation by interest rate intervention has the cost of destroying price discovery. Also, that it is a primary cause of wealth inequality. These relationships seem to me actually obvious: push down DCF denominators and valuations go up, inefficient businesses stay in business and employ people digging holes. Sure, we get good jobs reports, but we also work harder to make less. Meanwhile those who hold wealth see its value increase disproportionate to 'actual' worth and common people who hold little or none can afford less and less of it. It seems like a pretty direct policy of 'rich get richer, poor get poorer'. Worse yet, as I look at the world around me, it all seems to support my hypothesis. Tesla, spacs, NFTs, housing, blackrock & vanguard & gates buying land, etc. I could go on and on with examples.
But the thing is, I got shitty grades in my college econ courses. It's laughable to me that all the highly educated people at central banks somehow haven't thought of this but I have. I'm being serious, I'm kind of a lazy idiot. By any reasonable measure, I expect that I'm wrong.
Could you point me in the direction of some primary sources that address the relationship between interest rate intervention and price discovery? I've been told to pick up an undergrad macro text, but those all just seem to say "low rates = easier to get loans = mo' jobz" without any rigor.
Open market ops and other interventions are so common and accepted, the only other people I see complaining are precious metals schizos. Surely there's a theoretical foundation for the policy/practice.
It seems to me that the widely accepted practice of market stimulation by interest rate intervention has the cost of destroying price discovery. Also, that it is a primary cause of wealth inequality. These relationships seem to me actually obvious: push down DCF denominators and valuations go up, inefficient businesses stay in business and employ people digging holes. Sure, we get good jobs reports, but we also work harder to make less. Meanwhile those who hold wealth see its value increase disproportionate to 'actual' worth and common people who hold little or none can afford less and less of it. It seems like a pretty direct policy of 'rich get richer, poor get poorer'. Worse yet, as I look at the world around me, it all seems to support my hypothesis. Tesla, spacs, NFTs, housing, blackrock & vanguard & gates buying land, etc. I could go on and on with examples.
But the thing is, I got shitty grades in my college econ courses. It's laughable to me that all the highly educated people at central banks somehow haven't thought of this but I have. I'm being serious, I'm kind of a lazy idiot. By any reasonable measure, I expect that I'm wrong.
Could you point me in the direction of some primary sources that address the relationship between interest rate intervention and price discovery? I've been told to pick up an undergrad macro text, but those all just seem to say "low rates = easier to get loans = mo' jobz" without any rigor.
Open market ops and other interventions are so common and accepted, the only other people I see complaining are precious metals schizos. Surely there's a theoretical foundation for the policy/practice.
You’re not crazy, if you want to find lots of discussion about this topic head to
https://alhambrapartners.com/tag/eurodollar-university/
But to be fair to the Fed (not to excuse plenty of incompetence), the banks in 08 became close to insolvency. The ‘proper’ way to inject money into the economy would’ve required Congress to authorize a recapitalization of banks - which would’ve been political suicide.
But to be fair to the Fed (not to excuse plenty of incompetence), the banks in 08 became close to insolvency. The ‘proper’ way to inject money into the economy would’ve required Congress to authorize a recapitalization of banks - which would’ve been political suicide.
We tried austerity in the European Union. It worked (but only for Germany). The rest never recovered from the 2009 collapse.
Austerity does not work with the current money system because any deflationary effect of paying debts back leads to currency speculation.
Every dollar is like a capillary in your body. Taking money out of circulating is equivalent to blocking the capillary.
When you do austerity it's like getting multiple simultaneous heart attacks. The Austrian economists say just deal with the pain but I have a fairer proposal. Tax cash at 6%, then you can pay off debts. Anyone who wants to save can go to a bank and lend out their money at 0% or above.
Every dollar is like a capillary in your body. Taking money out of circulating is equivalent to blocking the capillary.
When you do austerity it's like getting multiple simultaneous heart attacks. The Austrian economists say just deal with the pain but I have a fairer proposal. Tax cash at 6%, then you can pay off debts. Anyone who wants to save can go to a bank and lend out their money at 0% or above.
We did, don't be dramatic.
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?location...
> It seems to me that the widely accepted practice of market stimulation by interest rate intervention has the cost of destroying price discovery. Also, that it is a primary cause of wealth inequality.
Those claims deserve an explanation and empirical evidence.
Measuring price discovery itself is a bit awkward. You could say that poor quality price discovery would result in more price volatility, and that increased costs of price discovery would result in lower liquidity. Unfortunately, both of those things have many other causal factors. How would you untangle the causes to isolate the effects of interest rate intervention?
Making the leap to saying it's the primary cause of wealth inequality is absurd. So long as society uses a market economy, or allows any form of individual wealth aggregation, wealth is likely to follow a log-normal distribution.
Those claims deserve an explanation and empirical evidence.
Measuring price discovery itself is a bit awkward. You could say that poor quality price discovery would result in more price volatility, and that increased costs of price discovery would result in lower liquidity. Unfortunately, both of those things have many other causal factors. How would you untangle the causes to isolate the effects of interest rate intervention?
Making the leap to saying it's the primary cause of wealth inequality is absurd. So long as society uses a market economy, or allows any form of individual wealth aggregation, wealth is likely to follow a log-normal distribution.
The proper operation of monetary policy (which you can verify by cracking open any macroeconomics 101 textbook) calls for the central bank to control interest rates via the creation and destruction of money, such that the interest rate in the market for money (via fixed income instruments) always remains at an equilibrium rate.
The Fed failed to effectively create money in ‘08 and afterwards, and instead settled for more or less directly controlling the price of fixed income instruments. This is bypassing the textbook cause and effect mechanism and is indeed the equivalent to a price control in the fixed income market.
You can see negative effects by realizing that price controls always widen the gap between the marginal borrower vs. non-borrower — in a ‘true low rates’ scenario, loans would’ve been freely available at the low rate, but in post-Recession US, loan rates were low, but only strong borrowers could get liquidity. That directly widens the gap between the haves and have-nots, and was a direct result of Fed policy.
The Fed failed to effectively create money in ‘08 and afterwards, and instead settled for more or less directly controlling the price of fixed income instruments. This is bypassing the textbook cause and effect mechanism and is indeed the equivalent to a price control in the fixed income market.
You can see negative effects by realizing that price controls always widen the gap between the marginal borrower vs. non-borrower — in a ‘true low rates’ scenario, loans would’ve been freely available at the low rate, but in post-Recession US, loan rates were low, but only strong borrowers could get liquidity. That directly widens the gap between the haves and have-nots, and was a direct result of Fed policy.
Asset inflation is exacerbating inequality, but to say it's the "primary cause" isn't supported.
[deleted]
>It seems to me that the widely accepted practice of market stimulation by interest rate intervention has the cost of destroying price discovery.
The idea that low interest rates stimulate anything is a myth. If you believe in the idea that the financial markets should obey the real world, rather than the opposite (which is assumed by practically all economics), then interest rates must go down all the way to 0% as the market reaches saturation.
> Also, that it is a primary cause of wealth inequality.
The idea that one should raise interest rates in a stagnant economy will cause nothing but a redistribution from the working class to the owning class. Who do you think is working for those interest payments? The rich? Do they even pay enough taxes to service government debt? Do they pay the interest payments for the financing that companies need to operate? Do they pay the interest on consumer loans of the poor?
>These relationships seem to me actually obvious: push down DCF denominators and valuations go up, inefficient businesses stay in business and employ people digging holes.
>Meanwhile those who hold wealth see its value increase disproportionate to 'actual' worth and common people who hold little or none can afford less and less of it.
It's exactly backwards. Getting paid interest in a saturated market creates excess liquidity which floods the market and drives yields down everywhere. People start speculating because they have nothing better to do.
>It seems like a pretty direct policy of 'rich get richer, poor get poorer'.
Well, that's what interest does. If you have too much money you get more. http://userpage.fu-berlin.de/~roehrigw/kennedy/english/chap1...
>Worse yet, as I look at the world around me, it all seems to support my hypothesis. Tesla, spacs, NFTs, housing, blackrock & vanguard & gates buying land, etc. I could go on and on with examples.
Land speculation is an extremely old problem that has always existed. https://bibliotek1.dk/english/history/centuries-of-experienc...
>But the thing is, I got shitty grades in my college econ courses. It's laughable to me that all the highly educated people at central banks somehow haven't thought of this but I have. I'm being serious, I'm kind of a lazy idiot. By any reasonable measure, I expect that I'm wrong.
You're wrong and the central bankers are wrong as well but they have no other option which is why they do what they do. When you take money out of the economy by saving it, the money in circulation goes down. The savers think they should be paid interest to circulate the money. The thing is, savers can just sit on their money which means they can charge an interest rate that is not set by supply and demand. Central bankers think the missing money has to be replenished. The thing about interest is that the amount of missing money in the economy grows exponentially.
The obvious answer is to just tax the people who are sitting on cash. If they are lucky enough to find a borrower that wants to pay them 0% interest, then they get to keep their money. That is a real free market.
Saving in cash is akin to blocking a road and demanding interest is like charging a toll for anyone who dares to take that road. The central bankers build a new road next to yours and then you block it too, leading to endless road construction. Fine the person blocking the road and you won't need to do much else.
>Could you point me in the direction of some primary sources that address the relationship between interest rate intervention and price discovery? I've been told to pick up an undergrad macro text, but those all just seem to say "low rates = easier to get loans = mo' jobz" without any rigor.
I would urge to watch this video series instead: https://www.youtube.com/watch?v=UI2Zs3QfzEI&list=PL65E9E0867...
>Open market ops and other interventions are so common and accepted, the only other people I see complaining are precious metals schizos. Surely there's a theoretical foundation for the policy/practice.
Have fun treating the symptoms and then noticing, that your solution either delayed the inevitable or made things worse to the point that people start a violent revolution and then reintroduce the same system so your grandchildren can experience a revolution as well.
Here are other excerpts from that book: http://userpage.fu-berlin.de/~roehrigw/kennedy/english/
The idea that low interest rates stimulate anything is a myth. If you believe in the idea that the financial markets should obey the real world, rather than the opposite (which is assumed by practically all economics), then interest rates must go down all the way to 0% as the market reaches saturation.
> Also, that it is a primary cause of wealth inequality.
The idea that one should raise interest rates in a stagnant economy will cause nothing but a redistribution from the working class to the owning class. Who do you think is working for those interest payments? The rich? Do they even pay enough taxes to service government debt? Do they pay the interest payments for the financing that companies need to operate? Do they pay the interest on consumer loans of the poor?
>These relationships seem to me actually obvious: push down DCF denominators and valuations go up, inefficient businesses stay in business and employ people digging holes.
>Meanwhile those who hold wealth see its value increase disproportionate to 'actual' worth and common people who hold little or none can afford less and less of it.
It's exactly backwards. Getting paid interest in a saturated market creates excess liquidity which floods the market and drives yields down everywhere. People start speculating because they have nothing better to do.
>It seems like a pretty direct policy of 'rich get richer, poor get poorer'.
Well, that's what interest does. If you have too much money you get more. http://userpage.fu-berlin.de/~roehrigw/kennedy/english/chap1...
>Worse yet, as I look at the world around me, it all seems to support my hypothesis. Tesla, spacs, NFTs, housing, blackrock & vanguard & gates buying land, etc. I could go on and on with examples.
Land speculation is an extremely old problem that has always existed. https://bibliotek1.dk/english/history/centuries-of-experienc...
>But the thing is, I got shitty grades in my college econ courses. It's laughable to me that all the highly educated people at central banks somehow haven't thought of this but I have. I'm being serious, I'm kind of a lazy idiot. By any reasonable measure, I expect that I'm wrong.
You're wrong and the central bankers are wrong as well but they have no other option which is why they do what they do. When you take money out of the economy by saving it, the money in circulation goes down. The savers think they should be paid interest to circulate the money. The thing is, savers can just sit on their money which means they can charge an interest rate that is not set by supply and demand. Central bankers think the missing money has to be replenished. The thing about interest is that the amount of missing money in the economy grows exponentially.
The obvious answer is to just tax the people who are sitting on cash. If they are lucky enough to find a borrower that wants to pay them 0% interest, then they get to keep their money. That is a real free market.
Saving in cash is akin to blocking a road and demanding interest is like charging a toll for anyone who dares to take that road. The central bankers build a new road next to yours and then you block it too, leading to endless road construction. Fine the person blocking the road and you won't need to do much else.
>Could you point me in the direction of some primary sources that address the relationship between interest rate intervention and price discovery? I've been told to pick up an undergrad macro text, but those all just seem to say "low rates = easier to get loans = mo' jobz" without any rigor.
I would urge to watch this video series instead: https://www.youtube.com/watch?v=UI2Zs3QfzEI&list=PL65E9E0867...
>Open market ops and other interventions are so common and accepted, the only other people I see complaining are precious metals schizos. Surely there's a theoretical foundation for the policy/practice.
Have fun treating the symptoms and then noticing, that your solution either delayed the inevitable or made things worse to the point that people start a violent revolution and then reintroduce the same system so your grandchildren can experience a revolution as well.
Here are other excerpts from that book: http://userpage.fu-berlin.de/~roehrigw/kennedy/english/
Oh man I'm really glad so many people jumped on my post, I'm looking forward to reading all of it and catching up and hopefully improving my grasp. At a glance though, this stuck out:
>...you take money out of the economy by saving it, the money in circulation goes down.
How do you take money out of the economy by saving it (unless it's under the mattress)? Banks make loans out of my savings, no? I thought a pretty common/basic macro identity was that savings = investment (or at least they are about equal and the same thing).
>...you take money out of the economy by saving it, the money in circulation goes down.
How do you take money out of the economy by saving it (unless it's under the mattress)? Banks make loans out of my savings, no? I thought a pretty common/basic macro identity was that savings = investment (or at least they are about equal and the same thing).
Scott Sumner likes Mishkin's Economics of Money, Banking, and Financial Markets. If you're in USA, looks like you can get the 7th edition for around $10.
* https://www.themoneyillusion.com/the-league-of-monetary-cran...
* https://www.themoneyillusion.com/mishkins-revealing-omission...
His blog is great. Mainstream, orthodox macroeconomics. Well written, useful, and entertaining. Read the whole thing, in chronological order:
* https://www.themoneyillusion.com/page/932/
I graduated with a B average in economics, so I can't address this head on, but here's my understanding of the mainstream perspective:
1. Never reason from a price change: Prices go up, therefore people buy less? To the contrary, this begs the question of, why did prices go up? The causation is backwards: demand goes up, and then prices respond.
2. For example: "Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." -Milton Friedman. The demand for money goes up (for whatever reason), the fed responds by increasing the supply of money, then interest rates fall.
3. Interest rates and inflation are nominal, thus don't impact relative prices (ie price discovery). Deflation/hyperinflation do have real effects though.
4. High/low, easy/tight is relative to market expectations. Successfully targeting the interest rate (or NGDP/aggregate demand) isn't market "stimulation" but keeping things on track, in a do no harm manner. And deviating does harm (ie business cycles).
5. Mainstream macro says money is neutral in the long run, non neutral in the short run. This might be what you're looking for: the effect of short term non neutrality of money on relative prices across the overall economy.
So, if the downward pressure on DCF denominators is an economy wide phenomenon (ie inflation), then it's still the same say top 10% of businesses that survive. The missing link for me is: what's pushing up the value of inefficient businesses more than efficient businesses (or apples)? What distorts prices specifically and systematically in favor of inefficient businesses, vs. against or randomly/unpredictably?
Now, let me go off the rails a bit re: wealth inequality. I think it's mostly just technology. There's just more and more stuff every year, and that sort of accretion, mix and stir with meritocracy, kleptocracy, plain old statistical randomness, network effects, what-have-you, lead to not just more wealth inequality, but inequality in general, and really just more overall diversity.
The space of possibilities is just expanding at an incredible rate, together with the population, so there's a lot more room. And, I think it's natural for the distribution of people to be diffuse across the space. And, more people across a wider space, it's harder to consolidate, especially upward (eg Mao moved us in the wrong direction). Markets + technology do bring up the floor (hunger, shelter, etc), but we're still a ways off from the floor or the ceiling hitting our biological limits, ie post scarcity a la Iain M Banks' The Culture.
* https://www.themoneyillusion.com/the-league-of-monetary-cran...
* https://www.themoneyillusion.com/mishkins-revealing-omission...
His blog is great. Mainstream, orthodox macroeconomics. Well written, useful, and entertaining. Read the whole thing, in chronological order:
* https://www.themoneyillusion.com/page/932/
I graduated with a B average in economics, so I can't address this head on, but here's my understanding of the mainstream perspective:
1. Never reason from a price change: Prices go up, therefore people buy less? To the contrary, this begs the question of, why did prices go up? The causation is backwards: demand goes up, and then prices respond.
2. For example: "Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." -Milton Friedman. The demand for money goes up (for whatever reason), the fed responds by increasing the supply of money, then interest rates fall.
3. Interest rates and inflation are nominal, thus don't impact relative prices (ie price discovery). Deflation/hyperinflation do have real effects though.
4. High/low, easy/tight is relative to market expectations. Successfully targeting the interest rate (or NGDP/aggregate demand) isn't market "stimulation" but keeping things on track, in a do no harm manner. And deviating does harm (ie business cycles).
5. Mainstream macro says money is neutral in the long run, non neutral in the short run. This might be what you're looking for: the effect of short term non neutrality of money on relative prices across the overall economy.
So, if the downward pressure on DCF denominators is an economy wide phenomenon (ie inflation), then it's still the same say top 10% of businesses that survive. The missing link for me is: what's pushing up the value of inefficient businesses more than efficient businesses (or apples)? What distorts prices specifically and systematically in favor of inefficient businesses, vs. against or randomly/unpredictably?
Now, let me go off the rails a bit re: wealth inequality. I think it's mostly just technology. There's just more and more stuff every year, and that sort of accretion, mix and stir with meritocracy, kleptocracy, plain old statistical randomness, network effects, what-have-you, lead to not just more wealth inequality, but inequality in general, and really just more overall diversity.
The space of possibilities is just expanding at an incredible rate, together with the population, so there's a lot more room. And, I think it's natural for the distribution of people to be diffuse across the space. And, more people across a wider space, it's harder to consolidate, especially upward (eg Mao moved us in the wrong direction). Markets + technology do bring up the floor (hunger, shelter, etc), but we're still a ways off from the floor or the ceiling hitting our biological limits, ie post scarcity a la Iain M Banks' The Culture.
>5. Mainstream macro says money is neutral in the long run, non neutral in the short run. This might be what you're looking for: the effect of short term non neutrality of money on relative prices across the overall economy.
That's only true if you accept war and revolution to be a mechanism for reaching equilibrium over the long run.
That's only true if you accept war and revolution to be a mechanism for reaching equilibrium over the long run.
Interesting! I don't see the connection between money neutrality, long run equilibrium, and war & revolution. What's the story here?
I know this is the mainstream, but all of this reads like total nonsense to me.
1. Price changes carry important information too. What if demand stays the same but price still goes up? It could there is too much money, or supply is constrained or a new tax was imposed in the chain, or something was banned or the market is simply inefficient.
2. Low rates are sign that money has been tight? Maybe in a world where rates are determined by a market, but right now the rates are whatever the Fed commands. If the Fed wasn't suppressing rates, all rates would be much higher. Further the demand for money is always infinite. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks?
3. Interest rates certainly drive relative prices as they widen and shrink the gaps between those on fixed income and everybody else. As such the different cohorts evolve different utility functions and preferences. For example certain asset prices can go higher than the price of food from interest alone.
4. Both inflation and NGDP are broad aggregates that clump together the top 1% with the rest with no regard of inequality, climate change, social unrest. It's easy to slip into a mode where the top 1% does extremely well while 99% are left behind and rioting, all satisfying the inflation or NGDP target. A mockery of a feudal economy in a way. And this is where we are heading.
5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision.
It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day.
By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation. The Fed increasingly need to resort to breaking the law to achieve their goals. The Fed is only allowed to buy government-guaranteed assets with the full faith that they will be repaid with taxes. They are not supposed to buy mortgages, ETFs, junk bonds, muni bonds. They've had these discussions in the past and determined it's against the federal reserve act. There is no doubt that the authors of the act never intended for this to be possible and the states wouldn't have even signed on the act if it was presented to them in such form.
1. Price changes carry important information too. What if demand stays the same but price still goes up? It could there is too much money, or supply is constrained or a new tax was imposed in the chain, or something was banned or the market is simply inefficient.
2. Low rates are sign that money has been tight? Maybe in a world where rates are determined by a market, but right now the rates are whatever the Fed commands. If the Fed wasn't suppressing rates, all rates would be much higher. Further the demand for money is always infinite. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks?
3. Interest rates certainly drive relative prices as they widen and shrink the gaps between those on fixed income and everybody else. As such the different cohorts evolve different utility functions and preferences. For example certain asset prices can go higher than the price of food from interest alone.
4. Both inflation and NGDP are broad aggregates that clump together the top 1% with the rest with no regard of inequality, climate change, social unrest. It's easy to slip into a mode where the top 1% does extremely well while 99% are left behind and rioting, all satisfying the inflation or NGDP target. A mockery of a feudal economy in a way. And this is where we are heading.
5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision.
It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day.
By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation. The Fed increasingly need to resort to breaking the law to achieve their goals. The Fed is only allowed to buy government-guaranteed assets with the full faith that they will be repaid with taxes. They are not supposed to buy mortgages, ETFs, junk bonds, muni bonds. They've had these discussions in the past and determined it's against the federal reserve act. There is no doubt that the authors of the act never intended for this to be possible and the states wouldn't have even signed on the act if it was presented to them in such form.
>2. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks?
The unsettling answer is that you would lose your job if they didn't do that and I don't mean because the chaos a bank collapse causes. No, I just mean that the money in circulation would dry up so fast, your employer won't have any money to pay you.
>4. A mockery of a feudal economy in a way. And this is where we are heading.
It's a feudal economy from the start, it's just that early on, most of the money is circulating in the hands of workers and once it stops it has to be borrowed from those that take it out of circulation.
>5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision.
Thanks, you are absolutely right. The problem, however, aren't the politicians, they have inherited a system designed to collapse on its own. It shouldn't be possible to take money out of circulation. Hyperinflation is effectively a problem of forced indebtedness. If the politicians had the option of refusing debt they would have taken it a long time ago.
As I said before, cash guarantees you a 0% yield on your investment, therefore money can be taken out of circulation with no loss to yourself but huge losses to people who are dependent on circulating money. They (including politicians) need the circulating money now, so they accept loan conditions that are not compatible with current market conditions.
The system will collapse one day, so why not let it collapse a few years later? It's only logical. Meanwhile anyone who wants interest rates to go up wants the system to collapse earlier than necessary.
>It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day.
As I already said, that money too will be taken out of circulation one day.
>By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation.
If you think the Fed is intervening, why are you not complaining about the people taking money out of circulation that force the Fed to do stupid things? Why does that not count as massive market intervention? If you had a 6% annual tax on cash the interest rate would have dropped to 0% in 2000 and the money supply wouldn't have to grow as much.
The unsettling answer is that you would lose your job if they didn't do that and I don't mean because the chaos a bank collapse causes. No, I just mean that the money in circulation would dry up so fast, your employer won't have any money to pay you.
>4. A mockery of a feudal economy in a way. And this is where we are heading.
It's a feudal economy from the start, it's just that early on, most of the money is circulating in the hands of workers and once it stops it has to be borrowed from those that take it out of circulation.
>5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision.
Thanks, you are absolutely right. The problem, however, aren't the politicians, they have inherited a system designed to collapse on its own. It shouldn't be possible to take money out of circulation. Hyperinflation is effectively a problem of forced indebtedness. If the politicians had the option of refusing debt they would have taken it a long time ago.
As I said before, cash guarantees you a 0% yield on your investment, therefore money can be taken out of circulation with no loss to yourself but huge losses to people who are dependent on circulating money. They (including politicians) need the circulating money now, so they accept loan conditions that are not compatible with current market conditions.
The system will collapse one day, so why not let it collapse a few years later? It's only logical. Meanwhile anyone who wants interest rates to go up wants the system to collapse earlier than necessary.
>It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day.
As I already said, that money too will be taken out of circulation one day.
>By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation.
If you think the Fed is intervening, why are you not complaining about the people taking money out of circulation that force the Fed to do stupid things? Why does that not count as massive market intervention? If you had a 6% annual tax on cash the interest rate would have dropped to 0% in 2000 and the money supply wouldn't have to grow as much.
The only reason for people to take money out of circulation is because nobody managed to convince them to spend or invest in something worthy. If the economy can't produce enough worthy money sinks, that is a structural problem with regulation, entrepreneur skills/education and general business UX.
Printing money doesn't fix any of these issues, the only thing money printing does is force the money into the overcrowded money sinks (AAPL) and scams (NFTs). And I am willing to argue this makes the problem worse, because talent is now wasted into supporting scams or the best talent is retiring on passive income from money printing instead of finding new ways to convince investors and consumers to spend productively.
Printing money doesn't fix any of these issues, the only thing money printing does is force the money into the overcrowded money sinks (AAPL) and scams (NFTs). And I am willing to argue this makes the problem worse, because talent is now wasted into supporting scams or the best talent is retiring on passive income from money printing instead of finding new ways to convince investors and consumers to spend productively.
Fair enough hahaha. I do think there's some room for common ground here.
1. Yes, absolutely. It would be due to a change in supply. Price controls, taxes, regulation, etc affect the price only insomuch as they affect supply and demand. It's a matter of definition: it's just as true in a market economy as it is in a non-market economy, or under market failure. Whether it's a useful framework is a different matter!
2a. So, interest rates are indeed determined by the market, with respect to open market operations right? The Fed buys and sells with a target in mind, but they certainly can, as you point out, fail to hit their target.
2b. This was a bit of unfortunate jargon: demand for "money" specifically means cash/cash equivalents relative to other assets like stocks/gold/real estate. It's not referring to wealth, although I do think the desire there isn't infinite: biological limits/post scarcity.
2c. And "demand" for money refers to the whole of the demand curve (and shifts in the whole of the curve). That is, how much of your portfolio do you want to hold in cash/equivalents at a given interest rate?
2d. Fed open market operations do target the whole of the economy: it's a ham fisted approach. Inflation affects groceries and gas, just as much as bank liquidity and such.
3. So, relative price change isn't inflation by definition, and market expectations of the interest rate path are priced in. Of course, there are plenty of relative price changes alongside inflation, but there's a lot more to the economy beyond open market operations. The Fed isn't able to specifically target say apples over oranges, hence ham fisted.
4. Sure, broad aggregates like NGDP don't include inequality or climate change, but that's a good thing because the Fed's job is limited to keeping aggregate demand (NGDP) on track. Of course there's a lot more to the economy, but that's beyond the realm of Fed open market operations. That is, I don't think the Fed is the right place to look for solutions.
5a. So money neutrality only says: a permanent 1 time increase to the money supply doesn't affect real GDP.
5b. Again, more jargon: "long run" is however long it takes for thing(s) to adjust (whatever it is: wages, rates, output, etc), and "short run" is just short of that. So as a unit of time, it depends on the good as well as real world conditions. The short run can go forever, market failure maybe. The short run can be zero, when things go according to market expectations and everything's already been priced in.
Sorry, a lot of that's non sequitur. But that's my point: I think the mainstream is a coherent and useful story, but it's not relevant in this context, hence total nonsense. To the extent that there's an upward trend in inefficient businesses or 'rich get richer, poor get poorer', I don't see how open market operations can be the culprit.
But yeah, I don't necessarily disagree with your overall impression of the Fed hahaha.
1. Yes, absolutely. It would be due to a change in supply. Price controls, taxes, regulation, etc affect the price only insomuch as they affect supply and demand. It's a matter of definition: it's just as true in a market economy as it is in a non-market economy, or under market failure. Whether it's a useful framework is a different matter!
2a. So, interest rates are indeed determined by the market, with respect to open market operations right? The Fed buys and sells with a target in mind, but they certainly can, as you point out, fail to hit their target.
2b. This was a bit of unfortunate jargon: demand for "money" specifically means cash/cash equivalents relative to other assets like stocks/gold/real estate. It's not referring to wealth, although I do think the desire there isn't infinite: biological limits/post scarcity.
2c. And "demand" for money refers to the whole of the demand curve (and shifts in the whole of the curve). That is, how much of your portfolio do you want to hold in cash/equivalents at a given interest rate?
2d. Fed open market operations do target the whole of the economy: it's a ham fisted approach. Inflation affects groceries and gas, just as much as bank liquidity and such.
3. So, relative price change isn't inflation by definition, and market expectations of the interest rate path are priced in. Of course, there are plenty of relative price changes alongside inflation, but there's a lot more to the economy beyond open market operations. The Fed isn't able to specifically target say apples over oranges, hence ham fisted.
4. Sure, broad aggregates like NGDP don't include inequality or climate change, but that's a good thing because the Fed's job is limited to keeping aggregate demand (NGDP) on track. Of course there's a lot more to the economy, but that's beyond the realm of Fed open market operations. That is, I don't think the Fed is the right place to look for solutions.
5a. So money neutrality only says: a permanent 1 time increase to the money supply doesn't affect real GDP.
5b. Again, more jargon: "long run" is however long it takes for thing(s) to adjust (whatever it is: wages, rates, output, etc), and "short run" is just short of that. So as a unit of time, it depends on the good as well as real world conditions. The short run can go forever, market failure maybe. The short run can be zero, when things go according to market expectations and everything's already been priced in.
Sorry, a lot of that's non sequitur. But that's my point: I think the mainstream is a coherent and useful story, but it's not relevant in this context, hence total nonsense. To the extent that there's an upward trend in inefficient businesses or 'rich get richer, poor get poorer', I don't see how open market operations can be the culprit.
But yeah, I don't necessarily disagree with your overall impression of the Fed hahaha.
This result is trivial so the derivation is left as an exercise.
Isn’t there a thing about how mathematicians and scientists in the 19th century would carefully explain as if the intended audience we’re laypeople. Where as in the 20th century academic writing and popular science writing diverged such that an academic writer could say such and such is obvious and be speaking to a very niche audience?
I heard of a prof who in a lecture said "It's obvious that..." and a student challenged him on it. "Is that really obvious?" The professor looked at the board for a minute, then left the room. 45 minutes later, the professor came back and said, "Yes, it's obvious!"
You keep using that word. I do not think it means what you think it means...
You keep using that word. I do not think it means what you think it means...
[deleted]
“…would you say I have a plethora?”
It is obvious to the "_most_ casual observer"... you need to get quite a bit more casual!
I have a friend who was in grad school and found an "...and so it follows" proof that was in standard textbooks dating back decades. To this day he can't find anyone to fill in the remainder of the proof to get the result.
The confusion comes from the differences in what words like 'obvious', 'trivial' mean in Mathematics and what they mean in English. Same deal with the word 'significant' in Statistics and English.
I used to take swipes at Haskell and Category theory folks for their use of their ektomorphisms but later realized the point of using words that are not used in regular English.
In mathematics obvious/trivial means no new math or technique needs to be invented to go from this step to that step, it does not mean it would be easy. This is fairly standard usage.
I used to take swipes at Haskell and Category theory folks for their use of their ektomorphisms but later realized the point of using words that are not used in regular English.
In mathematics obvious/trivial means no new math or technique needs to be invented to go from this step to that step, it does not mean it would be easy. This is fairly standard usage.
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Having followed engineering cursus THEN economics with econometry courses : this was the most WTF moments of my life.
It seems that ! is missing in equation (12).
Right! Here's an updated version with corrections: https://www.latrobe.edu.au/__data/assets/pdf_file/0004/25186...
> The principle in question might best be described as Occam's yeast. It makes the obvious, but often overlooked, point that when something is expressed as simply as possible, it is often too terse to be easily understood
And the power to delta
Honestly, the first lesson in economics should be that there is no such thing as endless exponential growth.
This is a nice video that gets the point across: https://youtu.be/UI2Zs3QfzEI
This is a nice video that gets the point across: https://youtu.be/UI2Zs3QfzEI
Are you sure about it? I mean so far you could describe the success of capitalism with exponential growth. Now you could argue that the earth resources are limited, but who knows if we gonna stay here forever. The universe is quite big...
What I am really getting at is the dependence on growth. It's fine to have it but not to force it.
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Funny, now do epidemiology.
Equation 4 is obviously incorrect, right?
Econometrics is one of the most discredited branches of academics that exists. These were the people who were waving their models around in the early 1990s, trying to tell people that NAFTA would have no effect on manufacturing jobs in the United States. They also promoted elimination of Glass-Steagall and the deregulation of the housing market, resulting in the subprime fraud-based economic disaster of 2008.
There's a reason the neoclassical economists are hidden away in business schools, not in the actual science departments - it's because they'd have to endure the ridicule of anyone with basic training in science and math. When your models predict the opposite of what actually occurs, time and time again, well, you're supposed to recognize that there are fundamental flaws in them and go back to basics.
Imagine if, in the late 1970s, all the climate researchers had predicted several decades of global cooling thanks to human activity, and had turned out to be entirely wrong, yet made no effort to re-examine their basic assumptions about how the world works. That's what neoclassical economists are doing with their econometric model nonsense.
There's a reason the neoclassical economists are hidden away in business schools, not in the actual science departments - it's because they'd have to endure the ridicule of anyone with basic training in science and math. When your models predict the opposite of what actually occurs, time and time again, well, you're supposed to recognize that there are fundamental flaws in them and go back to basics.
Imagine if, in the late 1970s, all the climate researchers had predicted several decades of global cooling thanks to human activity, and had turned out to be entirely wrong, yet made no effort to re-examine their basic assumptions about how the world works. That's what neoclassical economists are doing with their econometric model nonsense.
This comment is totally uninformed and completely wrong.
Econometrics is the study of making inferences about economic models from data. Making inferences from data is fundamental to everything economists have done for a long time. Econometricians are essentially applied statisticians. Indeed, I can think of many econometricians I personally know who have joint appointments in university statistics departments. Your claim that they are "hidden in business schools" is completely incorrect.
Econometricians are unlikely to have made predictions about NAFTA. You provide no source for your claim that they did. Nor are they likely to have advocated against Glass-Steagall. You provide no evidence for this claim either.
If you think econometricians have no training in science or math, you are also totally and completely wrong. (Again: do you think so many econometricians would have joint appointments _in statistics departments_ if that were true?)
I would also invite you to visit any seminar in a prominent university economics department in the United States, not just the econometrics seminar. Outside of pure game theory, every seminar series in every department is thoroughly empirical: what is the data, how are the parameters in the model identified, etc.
Or go talk to the economists who work at any of the large tech firms! Facebook, Google, and Amazon all have economics groups. Amazon's is to my knowledge the largest. They hire many econometricians every year and have consulting relationships with many of the leading academic econometricians. Would they put so much money into "one of the most discredited branches of academics that exists"? No, they would not.
You don't have the slightest idea what you are talking about.
Econometrics is the study of making inferences about economic models from data. Making inferences from data is fundamental to everything economists have done for a long time. Econometricians are essentially applied statisticians. Indeed, I can think of many econometricians I personally know who have joint appointments in university statistics departments. Your claim that they are "hidden in business schools" is completely incorrect.
Econometricians are unlikely to have made predictions about NAFTA. You provide no source for your claim that they did. Nor are they likely to have advocated against Glass-Steagall. You provide no evidence for this claim either.
If you think econometricians have no training in science or math, you are also totally and completely wrong. (Again: do you think so many econometricians would have joint appointments _in statistics departments_ if that were true?)
I would also invite you to visit any seminar in a prominent university economics department in the United States, not just the econometrics seminar. Outside of pure game theory, every seminar series in every department is thoroughly empirical: what is the data, how are the parameters in the model identified, etc.
Or go talk to the economists who work at any of the large tech firms! Facebook, Google, and Amazon all have economics groups. Amazon's is to my knowledge the largest. They hire many econometricians every year and have consulting relationships with many of the leading academic econometricians. Would they put so much money into "one of the most discredited branches of academics that exists"? No, they would not.
You don't have the slightest idea what you are talking about.
'Econometric models' have so many levers and dials on them that they be tuned to forecast whatever their operator wants them to forecast. Hence they mainly serve as a marketing tool to defend policies that their sponsors desire to get through Congress or the next board meeting or whatever.
As far as things like model projections for NAFTA, any relatively simple search turns up dozens of references. Google Scholar isn't all that bad for this, select a custom range 1990-1994 and enter "econometric model 1992 NAFTA projections". There are dozens of results. For example:
Appendix B, Macroeconomic Simulations of NAFTA https://www.cbo.gov/sites/default/files/103rd-congress-1993-...
You can find the same for those seeking to justify the China WTO deal c.2000 but I don't recall reading much about forecasts of creating something called 'the Rust Belt' all across the once-industrial zone covering a third of the US, or the resulting job losses and economic regional malaise. Perhaps something is missing in the models?
As far as things like model projections for NAFTA, any relatively simple search turns up dozens of references. Google Scholar isn't all that bad for this, select a custom range 1990-1994 and enter "econometric model 1992 NAFTA projections". There are dozens of results. For example:
Appendix B, Macroeconomic Simulations of NAFTA https://www.cbo.gov/sites/default/files/103rd-congress-1993-...
You can find the same for those seeking to justify the China WTO deal c.2000 but I don't recall reading much about forecasts of creating something called 'the Rust Belt' all across the once-industrial zone covering a third of the US, or the resulting job losses and economic regional malaise. Perhaps something is missing in the models?
> 'Econometric models' have so many levers and dials on them that they be tuned to forecast whatever their operator wants them to forecast.
I am going to guess you have never written down an economic model, much less presented one at an economics seminar. If your model can be "tuned to forecast whatever", you are going to be annihilated. You will never be able to get away with presenting a model like that. There is no place for it in the field.
Quite on the contrary, a premium is placed on parsimonious, well-identified models.
> Appendix B, Macroeconomic Simulations of NAFTA
This is a useful piece, but to make exactly the opposite of the point you wanted to make. Right there in the executive summary it says "although the overall effect of NAFTA on the US economy would be positive, some firms would contract. Industries in the US that make intensive use of low-wage labor and are now protected by trade barriers are likely to be put at a disadvantage."
Or see the entirety of Chapter 5 in the same document, where the authors repeatedly note that there will be industries where employment decreases.
Indeed, the worst part for your uninformed initial comment is page 87, wherein the following claim is made: "In sum, despite all of the analyses that have been conducted on various aspects of NAFTA, good information for answering the question 'How many workers would be displaced if NAFTA were implemented?' simply does not exist."
A substantial fraction of their Appendix B is devoted to noting weaknesses in the then-current literature about NAFTA. These users of econometrics are well aware of the limitations of the models.
Forecasting job losses at that time and today is extremely hard, and the authors of this study acknowledge that. This is literally the opposite of what you initially claimed about econometrics.
I am going to guess you have never written down an economic model, much less presented one at an economics seminar. If your model can be "tuned to forecast whatever", you are going to be annihilated. You will never be able to get away with presenting a model like that. There is no place for it in the field.
Quite on the contrary, a premium is placed on parsimonious, well-identified models.
> Appendix B, Macroeconomic Simulations of NAFTA
This is a useful piece, but to make exactly the opposite of the point you wanted to make. Right there in the executive summary it says "although the overall effect of NAFTA on the US economy would be positive, some firms would contract. Industries in the US that make intensive use of low-wage labor and are now protected by trade barriers are likely to be put at a disadvantage."
Or see the entirety of Chapter 5 in the same document, where the authors repeatedly note that there will be industries where employment decreases.
Indeed, the worst part for your uninformed initial comment is page 87, wherein the following claim is made: "In sum, despite all of the analyses that have been conducted on various aspects of NAFTA, good information for answering the question 'How many workers would be displaced if NAFTA were implemented?' simply does not exist."
A substantial fraction of their Appendix B is devoted to noting weaknesses in the then-current literature about NAFTA. These users of econometrics are well aware of the limitations of the models.
Forecasting job losses at that time and today is extremely hard, and the authors of this study acknowledge that. This is literally the opposite of what you initially claimed about econometrics.
> I am going to guess you have never written down an economic model, much less presented one at an economics seminar. If your model can be "tuned to forecast whatever", you are going to be annihilated. You will never be able to get away with presenting a model like that. There is no place for it in the field.
A poorly specified model will get ripped apart when presented in an academic context. I've seen it happen in seminars. Questions about the standard errors (robust? clustered?), omitted variable bias, whether things have been detrended, fixed effects, quality of the instrumental variable, etc. When econometrics is done properly and by the book, it can be a useful tool for analyzing observational data.
But these tools get regularly applied outside of academia and the results are presented to people who can't critically evaluate them. Nobody knows that you ran a million other regressions in STATA, and kept the significant one. Or that your result isn't robust when you excluded/included such-and-such variables. When research is motivated in a particular direction (as it often is in politics and consulting), then you can often pull the levers and turn the dials until you get the result you want.
A poorly specified model will get ripped apart when presented in an academic context. I've seen it happen in seminars. Questions about the standard errors (robust? clustered?), omitted variable bias, whether things have been detrended, fixed effects, quality of the instrumental variable, etc. When econometrics is done properly and by the book, it can be a useful tool for analyzing observational data.
But these tools get regularly applied outside of academia and the results are presented to people who can't critically evaluate them. Nobody knows that you ran a million other regressions in STATA, and kept the significant one. Or that your result isn't robust when you excluded/included such-and-such variables. When research is motivated in a particular direction (as it often is in politics and consulting), then you can often pull the levers and turn the dials until you get the result you want.
> Nobody knows that you ran a million other regressions in STATA, and kept the significant one.
Totally fair criticism and I agree with it. Not at all specific to econometrics though!
> Or that your result isn't robust when you excluded/included such-and-such variables.
100%! Also definitely not specific to econometrics.
> When research is motivated in a particular direction (as it often is in politics and consulting) ...
The CBO is non-partisan. I have more faith in them than that (unless you have inside information?). The whole tone of the specific report linked is very much "here is what we know and don't know and here is our best estimate, which has limits." That is research as it should be at its best. Litigation consulting is different.
> ... then you can often pull the levers and turn the dials until you get the result you want.
Here I don't agree. There are limits. It's not that as simple as that. I can't turn an estimated -5 into positive 500 just because I want to.
Totally fair criticism and I agree with it. Not at all specific to econometrics though!
> Or that your result isn't robust when you excluded/included such-and-such variables.
100%! Also definitely not specific to econometrics.
> When research is motivated in a particular direction (as it often is in politics and consulting) ...
The CBO is non-partisan. I have more faith in them than that (unless you have inside information?). The whole tone of the specific report linked is very much "here is what we know and don't know and here is our best estimate, which has limits." That is research as it should be at its best. Litigation consulting is different.
> ... then you can often pull the levers and turn the dials until you get the result you want.
Here I don't agree. There are limits. It's not that as simple as that. I can't turn an estimated -5 into positive 500 just because I want to.
> I can't turn an estimated -5 into positive 500 just because I want to.
I didn't have quite that much precision in mind. More like "flip the coefficient's sign" or "make the coefficient bigger" or "make it statistically significant", which are all often doable with enough experimentation (as much as I hate to admit it).
I didn't have quite that much precision in mind. More like "flip the coefficient's sign" or "make the coefficient bigger" or "make it statistically significant", which are all often doable with enough experimentation (as much as I hate to admit it).
To be fair, the purpose of referencing the Google Scholar citation was not to support the claim that econometricians predicted no decline in manufacturing, it was to refute your claim that:
"Econometricians are unlikely to have made predictions about NAFTA."
I don't know why you would have made such a claim since it should be fairly obvious that econometricians made numerous predictions of all sorts.
I will respect your stance on the issue, you are obviously very informed on the subject and seem passionate about it and that deserves respect, but I'm more sympathetic to OP's point of view that econometricians have not produced much in the way of a consensus on any kind of prediction. Whether we look at the 90s at NAFTA, or the rise of China or other third world countries, or Brexit, or even less global topics and instead pick more local and focused subjects such as the minimum wage, rent control, tax policy... you can basically pick any position on such topics and you won't find anything close to a consensus on it.
"Econometricians are unlikely to have made predictions about NAFTA."
I don't know why you would have made such a claim since it should be fairly obvious that econometricians made numerous predictions of all sorts.
I will respect your stance on the issue, you are obviously very informed on the subject and seem passionate about it and that deserves respect, but I'm more sympathetic to OP's point of view that econometricians have not produced much in the way of a consensus on any kind of prediction. Whether we look at the 90s at NAFTA, or the rise of China or other third world countries, or Brexit, or even less global topics and instead pick more local and focused subjects such as the minimum wage, rent control, tax policy... you can basically pick any position on such topics and you won't find anything close to a consensus on it.
I didn’t address that point because it would seem extremely pedantic.
To an economist, “an econometrician” is almost always someone who spends their time developing new estimators and proving things about their properties.
The people who wrote the CBO report are very unlikely to have been econometricians according to nearly any economist. The CBO mostly hires applied people of various kinds, whether in micro or macro.
They are users of econometrics, as we all are, but to say they are “econometricians” as economists use that term would be wrong.
But that seemed like an extremely pedantic objection to the OPs point.
To an economist, “an econometrician” is almost always someone who spends their time developing new estimators and proving things about their properties.
The people who wrote the CBO report are very unlikely to have been econometricians according to nearly any economist. The CBO mostly hires applied people of various kinds, whether in micro or macro.
They are users of econometrics, as we all are, but to say they are “econometricians” as economists use that term would be wrong.
But that seemed like an extremely pedantic objection to the OPs point.
Econometric models are mentioned twice in that paper, and only to note that they are generally not used and will not be used in the present study, which favors a certain type of general-equilibrium model called the MSG model.
We can make this short:
There is a continuum of causal/counterfactual techniques in economics.
This continuum ranges between "calibrated" simulation models and "econometric" models. The latter are statistical approaches, with the extreme capped by distribution free or semi-parametric "causal" estimations.
Structural dynamic econometric models, for example the estimation of parameters of auctions, hiring behavior or impacts of cost shifts, would fall in the middle of that range, featuring approaches from both areas (for example, computational fixed-point search for equilibria, re-estimation of parameters and then looping back to a new equilibrium).
The paper you cite is on the former: it is a calibrated DSGE model. It is therefore not even an econometric model.
I don't want to be mean, but it really, really seems you are on the first Dunning Kruger peak of "knowing what one is talking about" when it comes to econometrics.
There is a continuum of causal/counterfactual techniques in economics.
This continuum ranges between "calibrated" simulation models and "econometric" models. The latter are statistical approaches, with the extreme capped by distribution free or semi-parametric "causal" estimations.
Structural dynamic econometric models, for example the estimation of parameters of auctions, hiring behavior or impacts of cost shifts, would fall in the middle of that range, featuring approaches from both areas (for example, computational fixed-point search for equilibria, re-estimation of parameters and then looping back to a new equilibrium).
The paper you cite is on the former: it is a calibrated DSGE model. It is therefore not even an econometric model.
I don't want to be mean, but it really, really seems you are on the first Dunning Kruger peak of "knowing what one is talking about" when it comes to econometrics.
This is silly. Econometrics is the basis for much of what we now call data science, and good causal inference. It has bugger all to do with nafta.
I think you’re mainly focusing on macro and it’s not completely unwarranted. That said, micro stuff is fascinating to say the least, and very pertinent to data science. In fact, much of “data science” projects until 2012-13ish were handled by economists.
They're not just focusing on macro, they are confusing econometrics with economics. Econometrics has nothing to do with any specific economic theory; it is about statistical modelling.
There are theories which dispute the underlying premises of econometrics. Economics is sometimes referred to as "the dismal science". Experiments cannot be constructed in the same way as the natural sciences. Dressing economics up in the pretenses of the natural sciences has arguably led us down a path of shenanigans. Consider the Federal reserve's machinations, deliberately opaque language and absurd narratives such as "transient inflation" or "symmetric inflation".
>The main characteristic or nature of human beings is that they are rational animals. They use their minds to sustain their lives and well-being. The usage of the mind, however, is not set to follow some kind of automatic procedure, but rather every individual employs his mind in accordance with his own circumstances. This makes it impossible to capture human nature by means of mathematical formulae, as is done in the natural sciences.
>In short, people have the freedom of choice to change their minds and pursue actions that are contrary to what was observed in the past. As a result of the unique nature of human beings, analyses in economics can only be qualitative.
>Furthermore, to pursue quantitative analysis implies the possibility of the assignment of numbers, which can be subjected to all of the operations of arithmetic. To accomplish this, it is necessary to define an objective fixed unit. Such an objective unit, however, doesn’t exist in the realm of human valuations. On this Mises wrote, "There are, in the field of economics, no constant relations, and consequently no measurement is possible."
>The main characteristic or nature of human beings is that they are rational animals. They use their minds to sustain their lives and well-being. The usage of the mind, however, is not set to follow some kind of automatic procedure, but rather every individual employs his mind in accordance with his own circumstances. This makes it impossible to capture human nature by means of mathematical formulae, as is done in the natural sciences.
>In short, people have the freedom of choice to change their minds and pursue actions that are contrary to what was observed in the past. As a result of the unique nature of human beings, analyses in economics can only be qualitative.
>Furthermore, to pursue quantitative analysis implies the possibility of the assignment of numbers, which can be subjected to all of the operations of arithmetic. To accomplish this, it is necessary to define an objective fixed unit. Such an objective unit, however, doesn’t exist in the realm of human valuations. On this Mises wrote, "There are, in the field of economics, no constant relations, and consequently no measurement is possible."
I suspect you may have a point hidden within here, a point that I might even agree with...
But it's hard to understand that point and believe that you are discussing in good faith when you conflate things that you must know not to, given your implied knowledge. Econometrics (methodology) and neoclassical (school of thought) are on different "axes" if you will, if you were to try to decompose economics into into orthogonal components. I know that's a simplification
Could you perhaps critique econometrics on its own?
Edit 1 because I can't type
Edit 2 to add this comment -- aww_dangs comment like 2 below here and 2 deeper is the closest to the critique this guy wanted to give
But it's hard to understand that point and believe that you are discussing in good faith when you conflate things that you must know not to, given your implied knowledge. Econometrics (methodology) and neoclassical (school of thought) are on different "axes" if you will, if you were to try to decompose economics into into orthogonal components. I know that's a simplification
Could you perhaps critique econometrics on its own?
Edit 1 because I can't type
Edit 2 to add this comment -- aww_dangs comment like 2 below here and 2 deeper is the closest to the critique this guy wanted to give
The problem with economics is that people make the assumption that money is primarily or even exclusively a medium of exchange. It's only since Keynes that everyone understood that it's not really true. However, if you were to tax cash with a 6% annual tax then the old classical period of economics would be quite relevant again.
This is probably true but it's quite an angry response to the linked article which is mostly just a joke.
Not sure why you're downvoted.
Likely because it's a confused comment not having any relationship to the posted article, and it demonstrates lack of even a basic understanding of what econometrics is. (Source: I teach econometrics classes in a college of arts and sciences, which I share with math, statistics, physics, chemistry, and biology departments.)
This is a politicized issue.