Friedman, Becker, and Klein on statistical illusions: Devising criteria to judge the performance of large-scale macroeconometric models

Erich Pinzón-Fuchs

Lecturas de Economía, 2023, issue 98, 131-165

Abstract: In 1957, Milton Friedman and Gary S. Becker accused Keynesian modelers of falling into a statistical illusion based on their inappropriate treatment of the consumption function and their inability to yield accurate predictions of income. However, despite their criticism, Friedman and Becker (1957), albeit unconsciously, significantly contributed to Keynesian large-scale macroeconometric modelling, anticipating both the dissemination of a method to evaluate model performance and the important role that dynamics would play in the construction of these models. This method was full model simulation, later routinized as computer dynamic simulation. Here, I provide an account of the early discussions on the evaluation of the performance of macroeconometric models and how ideas about dynamics entered the discussion of macroeconometric modelling.

Keywords: History of macroeconomics; history of econometrics; computer dynamic simulation; large-scale macroeconometric modelling; Lawrence R. Klein; Milton Friedman (search for similar items in EconPapers)
Date: 2023
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Journal Article: Friedman, Becker, and Klein on Statistical Illusions: Devising Criteria to Judge the Performance of Large-Scale Macroeconometric Models (2022)
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DOI: 10.17533/udea.le.n98a349111

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