Comments on: Numerical economic modelling

By: James Boag

James Boag — Thu, 18 Feb 2010 21:02:55 +0000

Harry makes a great point highlighting the fact that numerical modelling makes a theoretical framework less general and subject to parametric uncertainty. In addition, it is also very difficult to listen to presentations pertaining to such analysis because it is difficult to run through all the specific assumptions behind these models. However, without such applications, the practical relevance of theory would be fairly minimal. In my knowledge, I would not know that many policymakers who would rely on optimal control output to formulate regulations. Moreover, numerical simulations are often required because many theoretical models as they are extended to provide a better description of reality become unwieldy. Hence, the “low hanging theoretical fruit” are not a primary motivator, rather it is the need for pragmatism among economists. I think Harry’s comments are very relevant if you are an academic economist trying to publish, but if you want to influence the real world, then numerics will be an important and pertinent part of your toolbox.

By: hc

hc — Thu, 18 Feb 2010 03:36:58 +0000

Not sure Dd whether attaching numbers to the feasibility of a new iron ore project will help resolve the ‘go ahead’ decision. My guess is that qualitative insights – continued growth in China and scientific info re extraction costs will matter a lot.

By: derrida derider

derrida derider — Thu, 18 Feb 2010 02:09:05 +0000

I’d concede enough, Harry, to agree that the point estimates fallng out of models are often not what is most useful – the difference between point estimates of a base case and a counterfactual is most often what you’re after, in which case fixed errors can wash out. And also the real-life use of a lot of quantitative modelling is precisely the sensitivity testing – “jiggling the numbers [to show] that some effects will be important and others not so”.

But then again, I doubt BHP-Billiton depends on just “a general understanding of the situation” in choosing between putting a few billion into a new iron ore mine or a new offshore gas field.

By: rabee

rabee — Wed, 17 Feb 2010 21:42:12 +0000

there is a difference between what they do in calibration in economics and what they do in econometrics.

i love reading serious econometrics. things like estimation structural IO models or even macro time series. some of the stuff being done in australia is superb.

non-statistical calibration is typically incoherent.

By: hc

hc — Tue, 16 Feb 2010 09:52:53 +0000

DD, Maybe I have been too strong in my remarks – if you have good enough data then go for it. But typically you do not – economic phenomena can’t be described with the precision of the physical sciences. I think that forcing yourself to do a cost-benefit analysis forces you to consider the magnitude of effects – sometimes jiggling the numbers shows that some effects will be important and others not so. But I seldom believe the results of numerical modelling – in my experience there are too many assumptions built-in that strain credulity. A major issue is forecasting demand for the output being provided by a new investment project. I prefer to have a general understanding of the situation ratherr than relying on numbers pulled out of the air.

By: derrida derider

derrida derider — Tue, 16 Feb 2010 05:26:51 +0000

I think you’re dead wrong here Harry. For a start, how on earth can you do any sort of investment appraisal without crunching the numbers? And crunching those sort of numbers is numeric modelling of economic phenomena.

As I’ve often told people, the alternative to evidence-based formal quantitative modelling is not no modelling, but prejudice-based informal qualitative modelling. The human condition means we are forced to make predictions about the future all the time, those predictions are always made with some sort of mental model, so lets get the unexamined assumptions examined and the untested logic tested. Which is all that formal modelling does.

By: Sinclair Davidson

Sinclair Davidson — Sun, 14 Feb 2010 00:30:56 +0000

Two thoughts. (1) it’s just spam (2) This is obtuse comment on things people can do. Dumbledore can’t do it, Snape can.

By: hc

hc — Sat, 13 Feb 2010 21:02:49 +0000

I had to scratch around to interpret this comment. and still mdon't. Harry Potter fans anywhere?

By: Jack Economics

Jack Economics — Sat, 13 Feb 2010 08:05:03 +0000

Dumbledore gets Snape to give Harry Occulumency lessons rather than doing it himself. Jack Economics