Validation Of Economic Model Research Articles

Bringing the classroom to the real world: Field trips to marginalized neighborhoods

The authors incorporate experiential learning into three courses: Urban Economics, Labor Economics, and the Economics of Inequality. Students visit neighborhoods that, while geographically proximate, remain outside most students’ day-to-day experiences, such as a legal red-light district that is also home to low-wage immigrant workers and a public rental housing estate whose residents were recently relocated. These location-oriented field trips raise a confluence of themes, such as poverty and crime, that relate to and beyond the authors’ courses. Students’ written reflections provide evidence that they are able to: (i) identify economic concepts within the lived realities of communities; (ii) recognize the assumptions and validity of economic models; and (iii) contextualize and reevaluate the costs and benefits to the economic agents whom they model in the classroom.

Idealization, abstraction, and the policy relevance of economic theories

In theories that idealize the object of study, falsity is inserted somehow. However, the actual propositions by which the idealization takes place need not be false at all. An example from physics illustrates that the Ideal Gas Law and Boyle's Law are respective idealizations of the van der Waals Law. The idealizational procedures involved in reasoning from the latter to the former can be repeated at a higher level of abstraction than that of the laws as we know these from physics textbooks. Thus, idealization and abstraction can be seen as relatively independent methods of reasoning, the one to be carried out with or without the other at the same time. This underlines Uskali Mäki's taxonomy, which shows that horizontal isolations in economic reasoning form a procedure completely different from vertical isolations. In contrast, however, to his taxonomy, I propose to define idealization as horizontal isolation. The lessons for the policy relevance of science – and of economics in particular – are that the use of ideal models does not necessarily imply a total lack of their external validity. Further, I show that abstraction in theorizing, under certain conditions, may increase the policy relevance of theories, rather than that it is decreased. theories tend to count the actual social world – where policymakers try to intervene – among their models more easily than concrete theories. Finally, this paper also deals with one very problematic aspect of the common use of clauses in order to hedge economics hypotheses. Many idealizational clauses have a propensity for imprecise reference, due to which it is impossible to judge the external validity of economic models. I shall indicate how this problem relates to issues of interdisciplinarity in social science.

Key Issues for Monetary Policy: An ECB View

The European single currency, the euro, has become a visible and successful token of Europeans' drive towards unification. It was born in an era in which high-speed structural change tests the validity of economic models and defies searches for standard policy recipes. Like all central banks, the European Central Bank (ECB) must deal with uncertainty that derives not only from the timely identification of important disturbances but also imperfect knowledge of how such disturbances affect the economy. These problems are compounded by the likelihood that important and poorly understood structural changes accompany cyclical forces. Unification of Europe has brought about significant structural change, which has been amplified by the recent enlargement of the European Union. Under these conditions, independence of the ECB, a mandate of price stability, and clear rules of fiscal governance have been essential for the credibility of the euro. Thus, the ECB has quantified its target of price stability in a mediumterm framework. Like the US Federal Reserve, the ECB's policy framework is comprehensive, and its decisions are transparent. Unlike the Fed, however, the ECB has an explicit, quantitative definition of price stability and performs a detailed and explicit crosscheck between its economic analysis and detailed monetary analysis. These differences notwithstanding, the similarities between the ECB and the Fed are more important.