Can macromodels and simulations be trusted?

The Economist runs a good article.  Excerpt:

But how plausible were the numbers? Twelve years on, economists have
shown little inclination to go back and check. One exception is Timothy
Kehoe, an economist at the University of Minnesota. In a paper
published last year, he argued that the models “drastically
underestimated” NAFTA‘s impact on trade
flows (if not on jobs). The modellers assumed the trade pact would
allow people to buy more of the goods for which they had already shown
some appetite. In fact, the agreement set off an explosion in the
exports of many products Mexico had scarcely traded before. Cars, for
example, amounted to less than 1% of Mexico’s exports to Canada before
the agreement. By 1999, however, they accounted for more than 15%. The
only comfort economists can draw from their efforts, Mr Kehoe writes,
is that their predictions fared better than Mr Perot’s. A low bar

Here is Kehoe’s paper.


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