Econometric policy evaluation and expectations |
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Authors: | Wulfheinrich von Natzmer |
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Institution: | Institut für Allgemeine Wirtschaftsforschung, Abteilung Statistik und Ökonometrie, Universität Freiburg, Belfortstrasse 24, D-7800 Freiburg, FRG |
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Abstract: | Recently large-scale econometric models have been criticized as inappropriate tools for policy evaluation. One critical point often mentioned is the way expectations are formed. This paper shows that the way the process of expectations formation is considered does not play a crucial role. Instead, the ability to model agents' reactions to changes in policy is the essence of the critique. As long as government behaviour is sufficiently accessible in the model, applied econometrics may still use large-scale systems for which rational expectations solutions would be troublesome if not impossible to reach. |
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Keywords: | Econometric models Policy evaluation Rational expectations |
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