How econometric models help policy makers; theory and practice

Henk Don

No 27, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Frisch and Tinbergen founded the standard framework for finding the optimal economic policy by maximizing the welfare function under constraints supplied by the econometric model. Frisch worried about the reliability of the model and Tinbergen thought that it would be too difficult to specify the welfare function. Looking at current practice in Dutch policy making, both worries are relevant but the solutions proposed by the founders are not very helpful. Rather, the solution is found in applying an iterative trial-and-error procedure interfacing between the policy maker and the model-cum-expert system. The main contributions of the standard framework are its useful set of concepts, the famous order condition for a feasible solution, and the clear definition of role models for the two parties in the interaction.

JEL-codes: C0 C5 E6 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-ecm, nep-hpe and nep-mac
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Citations: View citations in EconPapers (7)

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