Monday, August 11, 2014

Lars P. Syll — Wren-Lewis’s confusing view of macroeconomic forecasting

The empirical and theoretical evidence is clear. Predictions and forecasts are inherently difficult to make in a socio-economic domain where genuine uncertainty and unknown unknowns often rule the roost. The real processes that underly the time series that economists use to make their predictions and forecasts do not confirm with the assumptions made in the applied statistical and econometric models. 
Much less is a fortiori predictable than standardly — and uncritically — assumed. The forecasting models fail to a large extent because the kind of uncertainty that faces humans and societies actually makes the models strictly seen inapplicable. The future is inherently unknowable — and using statistics, econometrics, decision theory or game theory, does not in the least overcome this ontological fact. The economic future is not something that we normally can predict in advance. Better then to accept that as a rule “we simply do not know.”
Like Maynard said.

Lars P. Syll’s Blog
Wren-Lewis’s confusing view of macroeconomic forecasting
Lars P. Syll | Professor, Malmo University

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