Working Paper: CEPR ID: DP8465
Authors: Gilles Saint-Paul
Abstract: This paper studies the trade-offs that an expert with ideological biases faces in designing his model. I assume the perceived model must be autocoherent, in that its use by all agents delivers a self-concerming equilibrium. The exercise is carried in the context of a simplified AS-AD model, where in principle the expert can influence policy by manipulation six key parameters: the Keynesian multiplier, the interest elasticity of aggregate demand, the response of output to actual and expected inflation in the Phillips curve, and the variances of supply and demand shocks. Typically, a larger reported Keynesian multiplier is favored by more left-wing economists, as is a flatter inflation output trade-off.But an important aspect of the analysis is that autocoherence conditions imply constraints and trade-offs between parameters. For example a larger reported Keynesian multiplier must be associated with a lower interest elasticity of aggregate demand for the economists?s model to match the data. Also, some parameters or some combinations of parameters must be truthfully revealed for the expert to remain autocoherent. These are the parameters that are "identified" from the empirical moments of the distribution of observables. This illustrates the tight link between parameter identification and the scope for bias that is generated by the autocoherence conditions.
Keywords: Autocoherence; Bias; Experts; Ideology; Macroeconomic Modelling; Political Economy
JEL Codes: A11; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ideological stance (left-wing vs. conservative) (P16) | Keynesian multiplier (E12) |
| Keynesian multiplier (E12) | interest elasticity of aggregate demand (D12) |
| Keynesian multiplier (E12) | output (C67) |
| interest elasticity of aggregate demand (D12) | inflation (E31) |
| ideological bias (P16) | reported values of key parameters (C29) |
| autocoherence conditions (C62) | constraints on parameter manipulation (C51) |