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The Need for Different Classes of Macroeconomic Models

Blanchard, Olivier, (2017), “The Need for Different Classes of Macroeconomic Models”, PIIE, 12 Ιανουαρίου

Theory models, aimed at clarifying theoretical issues within a general equilibrium setting. Models in this class should build on a core analytical frame and have a tight theoretical structure. They should be used to think, for example, about the effects of higher required capital ratios for banks, or the effects of public debt management, or the effects of particular forms of unconventional monetary policy. The core frame should be one that is widely accepted as a starting point and that can accommodate additional distortions. In short, it should facilitate the debate among macro theorists.

Policy models, aimed at analyzing actual macroeconomic policy issues. Models in this class should fit the main characteristics of the data, including dynamics, and allow for policy analysis and counterfactuals. They should be used to think, for example, about the quantitative effects of a slowdown in China on the United States, or the effects of a US fiscal expansion on emerging markets.

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