Saturday, March 13, 2010

My Colleague Lisa Schweitzer wonders whether anyone understands the Macro Economy

She says so in a note at the bottom of a blog posting.

Macroeconomics is unsatisfying to me, as well. In one sense, we can't really understand it, because our degrees-of-freedom (number of data points) are limited. We have had ten business cycles since WWII, and if we think seriously about these things, that means we have had only ten data points from which to draw inferences. Leaving aside Manski's issues about identification in general, this means we can only estimate the impacts of at most nine casual factors on economic performance, and only then with an enormous amount of imprecision.

Unfortunately, those making policy need to do the best they can anyway. It seems reasonable to me that when private sector demand falls off a cliff, the public sector should fill in the gap. It also makes sense to me in times of high unemployment to help the unemployed eat and stay in their house. But that has less to do with macroeconomics than it has to do with decency, an issue too many macroeconomists seem to be uncomfortable with considering.

I continue to like micro a lot, though.


Lisa Schweitzer said...

Poor Charles Whiteman (my macro teacher, twice) would be so disappointed in me!!

John said...

I've heard a lot about macro economy. I don't know what's the meaning of this today.