Working Paper: CEPR ID: DP8814
Authors: Volker Wieland; Tobias Cwik; Gernot Mueller; Sebastian Schmidt; Maik H. Wolters
Abstract: In the aftermath of the global financial crisis, the state of macroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism. Macroeconomists in academia and policy institutions have been blamed for relying too much on a particular class of macroeconomic models. This paper proposes a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms. Macroeconomic model comparison projects have helped produce some very influential insights such as the Taylor rule. However, they have been infrequent and costly, because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings. This paper provides a new approach that enables individual researchers to conduct model comparisons easily, frequently, at low cost and on a large scale. Using this approach a model archive is built that includes many well-known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies. A computational platform is created that allows straightforward comparisons of models' implications. Its application is illustrated by comparing different monetary and fiscal policies across selected models. Researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development.
Keywords: fiscal policy; macroeconomic models; model comparison; model uncertainty; monetary policy; policy rules; robustness
JEL Codes: E52; E58; E62; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy rule (E52) | persistence of output (C67) |
| monetary policy rule (E52) | persistence of inflation (E31) |
| expansionary monetary policy shock under Taylor rule (E19) | output response (C67) |
| expansionary monetary policy shock under LWW and SW rules (E19) | output response (C67) |
| government spending shocks (E62) | immediate increases in output (E23) |
| underlying model structure (C20) | degree and duration of output increase (E23) |