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As Santorum and Romney Battle for the Loony Right, the Rest of Us Should Not Gloat

Menzie Chinn vs. Casey Mulligan

I understand that there is no accountability at the New York Times: that it is bureaucratically incapable of saying "we must have a right-wing economist on our panel, but we really need one who is not an ignorant and uncurious ass". But surely there must be some tendency for Casey Mulligan to mark his beliefs to market? Or at least to conclude that he should be quiet until he has done so?

Alas, no…

Menzie Chinn reviews the record:

Econbrowser: Famous Conditional Forecasts from the Real Business Cycle Side: As I was reviewing material to use in teaching how new classical models relate to the popular aggregate demand/aggregate supply models [0] used in policy analysis, I ran into this forecast in the real business cycle vein from October 26, 2008.

Barring a nuclear war or other violent national disaster, employment will not drop below 134,000,000 and real GDP will not drop below $11 trillion.

All this is to illustrate that in the fog of business cycles, one's got to be careful about making forecasts (the rest of the article is a must-read, as is this rousing defense by Professor Mulligan in October 2009)…. [N]onfarm payroll employment…. At first glance, Professor Mulligan's forecast of GDP does better…. Of course, while Professor Mulligan did condition on no-nuclear war, he didn't condition on ARRA…. [I]n the absence of the ARRA, the economy would have breached the $11 trillion…. [I]t's unclear whether Professor Mulligan conditions on the Fed's extraordinary measures to support the credit markets; I think he believed they were not necessary, given this October 2008 post supporting the Minneapolis Fed working paper debunking the existence of a banking crisis (my discussion of Chari et al. (2008), aka wp 666 here).

I think all this is useful to recall the next time we hear a criticism of forecasts generated by models of the aggregate demand/aggregate supply mode, and forecasted responses to the ARRA, without any reference to conditioning statements. (Incidentally, the CBO has just released its latest assessment of the ARRA's impact. There's an excellent discussion of the range of models used in the CBO's analysis in the Appendix.)