Premium
Building Economic Models Corresponding to the Real World
Author(s) -
Huffaker Ray
Publication year - 2015
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppv021
Subject(s) - benchmark (surveying) , audit , computer science , scheme (mathematics) , work (physics) , econometrics , economics , operations research , accounting , mathematics , engineering , mechanical engineering , mathematical analysis , geodesy , geography
Increasingly, there are calls to audit models used in public policy for how accurately they portray the reality facing policy makers. Although models cannot be logically verified as accurate representations of reality, past work concludes that modelers can reasonably demonstrate the degree of correspondence. How to establish real‐world correspondence remains an open question. This paper outlines a framework of pre‐modeling data diagnostics to provide evidence of correspondence. The scheme—based on Nonlinear Time Series Analysis—provides a rigorous benchmark for specification and testing of policy models that reduces the likelihood that a misspecified model is discredited by an unanticipated crisis.