To stylize or not to stylize, is it a fact then? Clarifying the role of stylized facts in empirical model evaluation

Abstract

Though the concept of ‘stylized fact’ plays an important role in the economic literature, there is little analysis of the definition and evaluative use of the term. A permissive account of stylized facts is developed which focuses on their mediating role between models and empirical evidence. The mediation relationship restricts stylized facts by requiring concrete empirical targets. On the other hand, there is much legitimate diversity within the permissive account; key dimensions of diversity are argued to be the part of the model targeted (explanans vs. explanandum) and degree of partiality of correspondence. The use of stylized fact in model evaluation points to the downside of stylization: decreased ability to support strong claims about particular targets. In the final analysis, the role of stylized facts in model-based explanation depends on the view taken of the relative importance of generality and empirical adequacy.