Advancing a Free Society

How to Resolve the Stimulus Debate: Use Data Not the Same Models Over Again

Friday, July 1, 2011

Predictions made in early 2009 about whether the stimulus package would work varied widely because the models used to make the predictions varied widely. Models used by Christy Romer and Jared Bernstein predicted large effects of the 2009 stimulus (ARRA), while models used by John Cogan, Tobias Cwik, Volker Wieland and me predicted small effects.

Now that ARRA is winding down people are asking which prediction was right. Did ARRA stimulate the economy significantly or not? To answer this question the same models are again being used, but now to evaluate the policy. CBO, for example, takes this approach in their congressionally mandated impact studies of ARRA.

But you learn virtually nothing about whether a stimulus package worked using this approach because the models simply repeat the same prediction story over again.

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(photo credit: Elvi Brosniev)