Tuesday, July 12, 2011

Modeling assumptions

From Matt Yglesias:

I’ll note, however, that you might be a freshwater economist if you think it makes sense to reassure us that a deflationary spiral is impossible because your model says so even though deflationary spirals do, in fact, occur in human history. To me, a model that denies the possibility of something happening that does, in fact, happen indicates that you’re working with a flawed model.

I can't comment on whether or not this is a fair assessment of the work in question. But it is always a good idea to "reality check" model outputs and ensure that the distribution of events generated by the model looks something like real data. If important events occur in real data that your model dismisses as impossible than model misspecification or missing confounding variables should be immediately suspected.

EDIT: Noah Smith also comments and it is well worth the read. He traces these conclusions to some rather strong assumptions . . .

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