A New Macroeconomic Forecasting and Policy Evaluation Method

Abstract

The economy is often faced with a turn that is not to our liking, and we sometimes think it ought to be controllable by macroeconomic policy. While the spectrum of policies ranges from Keynesian “fine tuning” to using monetarist “rules,” every action (or inaction) of the government is a policy. Because of this it is important that government policy makers be guided by appropriate empirical models. Unfortunately, there is considerable variation in the large numbers of econometric models that have been developed thus far. Moreover, there are persistent problems, both technical and theoretical, with these models.