Economic model
Theoretical construct representing economic processes via variables and relationships.
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An economic model is a theoretical construct that uses variables and logical or quantitative relationships to represent economic processes.[1] A theoretical construct representing economic processes through variables and logical or quantitative relationships is what an economic model is.[1] Complex processes are illustrated by economic models through simplified, often mathematical, frameworks.[1]
Quick Facts
- Field
- Economics
- Types
- Stochastic
- non-stochastic
- qualitative
- quantitative
- accounting
- optimality/constrained optimization
Facts from the source article.
Key facts and history
Simplification is crucial in economics because of the enormous complexity of economic processes, which involve individual decisions, resource limits, and random fluctuations.[2] The models were tested against each other for their predictions of responses to specific economic shocks.[3] Structural parameters and exogenous variables, which can be altered to produce different economic responses, are frequently assumed by economic models.[1] Twelve major macroeconomic models that existed at that time were compared by the Brookings Institution during the late 1980s.[3]
Despite beginning from stable, known common parameters, the answers provided by the different models varied significantly.[3] Despite running enormous models on fast computers, predictions for economic recessions remain highly inaccurate.[4][5]
What the cited sources add
The same source notes that people are not good at checking whether economic predictions are accurate, which is why forecasters are well-paid despite a poor track record.[5] The FAQ explains that increasing model size does not necessarily help because the number of unknown parameters just increases.[5] It also states that mathematical models are powerful tools for understanding complex systems like the economy.[5] The Open Library record for "Essays in Positive Economics" lists its publisher as University Of Chicago Press and its publication date as August 15, 1966.[6]
The Open Library record for "Frequently Asked Questions in Quantitative Finance" lists its publisher as Wiley & Sons, Incorporated, John and its publication year as 2010.[7]
References
- Wikipedia, "Economic model" (CC BY-SA 4.0), which cites: Moffatt, Mike. (2008) About.com Structural Parameters Economics Glossary; Terms Beginning with S. Accessed June 19, 2008. (original not read by us) en.wikipedia.org
- Wikipedia, "Economic model" (CC BY-SA 4.0), which cites: Friedman, "Essays in Positive Economics", University of Chicago Press, 1953 (we also read that source) en.wikipedia.org
- Wikipedia, "Economic model" (CC BY-SA 4.0), which cites: Frankel, "The Sources of Disagreement Among International Macro Models and Implications for Policy Coordination", NBER Working Paper No. 1925, May 1986 (original not read by us) en.wikipedia.org
- Wikipedia, "Economic model" (CC BY-SA 4.0), which cites: "FAQ for Apollo's Arrow Future of Everything", www.postpythagorean.com (we also read that source) en.wikipedia.org
- "FAQ for Apollo's Arrow Future of Everything", www.postpythagorean.com. facts only, no text reused. postpythagorean.com
- Open Library record, ISBN 9780226264035 ("Essays in Positive Economics (Phoenix Books)"). CC0 (metadata); book content not read. openlibrary.org
- Open Library record, ISBN 9780470685143 ("Frequently Asked Questions in Quantitative Finance"). CC0 (metadata); book content not read. openlibrary.org
Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Economic model (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.
More in Economic Concepts & Models
Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Economic model (CC BY-SA 4.0).
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