Model Building in Economics: Its Purposes and Limitations

Description

Concern about the role and the limits of modeling has heightened after repeated questions were raised regarding the dependability and suitability of the models that were used in the run-up to the 2008 financial crash. In this book, Lawrence Boland provides an overview of the practices of and the problems faced by model builders to explain the nature of models, the modeling process, and the possibility for and nature of their testing. In a reflective manner, the author raises serious questions about the assumptions and judgments that model builders make in constructing models. In making his case, he examines the traditional microeconomics-macroeconomics separation with regard to how theoretical models are built and used and how they interact, paying particular attention to the use of equilibrium concepts in macroeconomic models and game theory and to the challenges involved in building empirical models, testing models, and using models to test theoretical explanations.

Lawrence Boland has been teaching at Simon Fraser University since 1966. He has also taught at the University of Wisconsin, Milwaukee and was a visiting professor in the Department of Economics at Boston University. At Capilano College and Vancouver Community College, he taught introductory sociology. He is a Fellow of the Royal Society of Canada. Dr Boland has published six books on economic methodology, including The Foundations of Economic Method: A Popperian Perspective (2003); The Principles of Economics: Some Lies My Teachers Told Me (1992); and The Methodology of Economic Model Building: Methodology after Samuelson (1989).

'The common practices of macroeconomists, like those of other tribes, look different when seen from inside or outside. Outsiders may see or take seriously things that insiders overlook because they seem part of the landscape. Professor Boland is an attentive and reflective outsider. I recommend especially his thoughts on the importance of defensibly realistic assumptions in macro model building. You will find other insights if you look.' Robert Solow, Professor Emeritus, Massachusetts Institute of Technology 'As the title suggests, Boland's new book is concerned with model building in economics: the nature of theories and models, the modeling process, the appraisal of models, and the use of models to test theoretical explanations against data. The author raises serious questions about the practices of model building and the problems faced by modelers, including the assumptions and judgments involved in constructing and validating economic models. The book will be of interest, not only to model builders, applied econometricians and people interested in economic methodology, but also to anybody interested in the foundations of economics as a scientific discipline, in general, and in the credibility of its theoretical and empirical underpinnings, in particular.' Aris Spanos, Wilson E. Schmidt Professor of Economics, Virginia Tech 'Models in economics are marvellous helpers but indifferent masters. Models become our masters when we fawn over them and take them literally and impose ill-fitting theoretical straightjackets on what we observe and on the interventions that we recommend. This timely book offers the insights and wisdom of Lawrence Boland regarding the changing role of models in the formation of knowledge and opinion in economics. The scope is historically and intellectually broad, with plenty to amuse and arouse readers. Among other observations, Boland argues that there is a generational gap in model building, and younger economists especially are encouraged to explore this book.' Edward Leamer, University of California, Los Angeles 'As with his earlier insightful books on methodology, Larry Boland clearly and comprehensively dissects model building in all its guises of theory, computer representations, lab and field experiments, and empirical (econometric) studies. This new contribution is filled with both pithy comments and deep analyses, highlighting the limits of many approaches currently in vogue.' Sir David F. Hendry, Oxford Martin School, University of Oxford 'The book's breadth of scope is breathtaking and it is a treasure trove of useful references for further pursuing more specific questions.' Erasmus Journal for Philosophy and Economics