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What’s Wrong with Economic Models? A Response to John Kay

Michael Woodford ()


Abstract: The article is a response to a polemical essay of J. Kay and his critique of macroeconomic modeling. The author shows that models are an indispensable instrument of economic analysis and that the only alternative would be the formulation and estimation of structural relationships between macroeconomic aggregates. But such a project is doomed to failure, because it does not account for the expectations of economic agents. However, as the author admits, the critique of rational expectations concept is justified. He shows possible directions that a more realistic analysis of ecpectation could take.

Keywords: global economic crisis; macroeconomic theory; rational expectations; economic methodology; economic models. (search for similar items in EconPapers)
JEL-codes: A11 A12 B40 C51 E00 E44 E66 (search for similar items in EconPapers)
Date: 2012
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