Macroeconomic Models, Forecasting, and Policymaking

Abstract

Models of the macroeconomy have gotten quite sophisticated, thanks to decades of development and advances in computing power. Such models have also become indispensable tools for monetary policymakers, useful both for forecasting and comparing different policy options. Their failure to predict the recent financial crisis does not negate their use, it only points to some areas that can be improved. “All models are false but some are useful” —George Box"