Title
Improving Monetary Policy Models
Author(s)
Christopher A. Sims Christopher Sims (Princeton University and NBER)
Abstract
If macroeconomic models are to be useful in policy-making, where uncertainty is pervasive, the models must be treated as probability models, whether formally or informally. Use of explicit probability models allows us to learn systematically from past mistakes, to integrate model-based uncertainty with uncertain subjective judgment, and to bind data-bassed forecasting together with theory-based projection of policy effects. Yet in the last few decades policy models at central banks have steadily shed any claims to being believable probability models of the data to which they are fit. Here we describe the current state of policy modeling, suggest some reasons why we have reached this state, and assess some promising directions for future progress.
Creation Date
2006-05
Section URL ID
CEPS
Paper Number
128
URL
https://gceps.princeton.edu/wp-content/uploads/2017/01/128sims.pdf
File Function
Jel
C53, E17, E52, E58
Keyword(s)
monetary policy
Suppress
false
Series
3