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Economic Modeling in the Post Great Recession Era

Book Description

Reality-based modeling for today's unique economic recovery

Economic Modeling in the Post Great Recession Era presents a more realistic approach to modeling, using direct statistical applications to address the characteristics and trends central to current market behaviors. This book's unique focus on the reality of today's markets makes it an invaluable resource for students and practitioners seeking a comprehensive guide to more accurate forecasting. While most books treat the economy as if it were in a vacuum, building models around idealized or perception-biased behaviors, this book deals with the economy as it currently stands—in a state of recovery, limited by financial constraints, imperfect information, and lags and disparities in price movements. The authors identify how these characteristics impact various markets' behaviors, and quantify those behaviors using SAS as the primary statistical tool.

Today's economy bears a number of unique attributes that usual modeling methods fail to consider. This book describes how to approach modeling based on real-world, observable data in order to make better-informed decisions in today's markets.

  • Discover the three economic characteristics with the greatest impact on various markets
  • Create economic models that mirror the current post-recession reality
  • Adopt statistical methods that identify and adapt to structural breaks and lags
  • Factor real-world imperfections into modeling for more accurate forecasting

The past few years have shown a clear demarcation between policymakers' forecasts and actual outcomes. As the dust settles on the Great Recession, after-effects linger—and impact our current recovery in ways that diverge from past experience and theoretical expectations. Economic Modeling in the Post Great Recession Era provides comprehensive guidance grounded in reality for today's economic decision-makers.

Table of Contents

  1. Preface/Justification
    1. FOUR CHARACTERISTICS OF A LESS-THAN- PERFECT ECONOMY
    2. WHY THIS BOOK?
  2. Acknowledgments
  3. CHAPTER 1 Setting the Context
    1. THE PROBLEM WITH UNCRITICAL ASSUMPTIONS IN A LESS-THAN-PERFECT ECONOMY
    2. THE PROBLEM WITH MODELS IN AN IMPERFECT ECONOMY
    3. FOUR CHARACTERISTICS OF A LESS-THAN-PERFECT ECONOMY
    4. ECONOMIC POLICY INCONSISTENCIES—THE PARABLE OF STRANGE BEDFELLOWS
    5. NOTES
  4. CHAPTER 2 Dynamic Adjustment in an Economy: Frictions Matter
    1. INTRODUCTION
    2. QUANTIFYING FRICTIONS: IS THE LONG-RUN AVERAGE A USEFUL GUIDE FOR THE FUTURE?
    3. MODELING DYNAMIC ADJUSTMENT DUE TO ECONOMIC FRICTIONS: DECISION MAKING IN AN EVOLVING WORLD
    4. DYNAMIC ECONOMIC ADJUSTMENT: AN EVOLUTION UNTO ITSELF
  5. Appendix
    1. A CASE FOR THE MULTIPLE MARKETS: 1983–2008
    2. THE LABOR MARKET: 1983–2008
    3. NOTES
  6. CHAPTER 3 Information: Past Imperfect, Present Incomplete, Future Uncertain
    1. STORY BEHIND THE NUMBERS
    2. CONCLUSION
    3. NOTES
  7. CHAPTER 4 Price Adjustment and Search for Equilibrium
    1. WHAT BARRIERS ARE THERE TO PERFECTLY FLEXIBLE PRICES?
    2. IMPLICATIONS
    3. FINDING DYNAMIC ADJUSTMENT IN THE DATA
    4. CONCLUSION
    5. NOTES
  8. CHAPTER 5 Business Investment: This Time is Different
    1. DRIVERS OF BUSINESS SPENDING
    2. PUTTING IT ALL TOGETHER: EXPLAINING SLOW RECOVERY IN CAPITAL INVESTMENT
    3. NOTES
  9. CHAPTER 6 Corporate Profits: Reward, Incentive, and That Standard of Living
    1. INTRODUCTION: PROFITS AS ESSENTIAL PARTNER
    2. THE ROLE OF PROFITS IN THE ECONOMIC CYCLE: FIVE DRIVERS
    3. THE ROLE OF PROFITS: INCENTIVES AND REWARDS
    4. CONCLUDING REMARKS: MODELING PROFITS
    5. NOTES
  10. CHAPTER 7 Labor Market Evolution: Implications for Private-Sector and Public-Policy Decision Makers
    1. PART I: LABOR MARKET IMPERFECTIONS
    2. PART II: HETEROGENEITY IN THE LABOR MARKET
    3. PART III: HOW DO SECULAR LABOR MARKET TRENDS IMPACT ECONOMIC POLICY?
    4. NOTES
  11. CHAPTER 8 Inflation: When What You Get Isn’t What You Expect
    1. INTRODUCTION
    2. WHAT IS INFLATION?
    3. WHY DOES INFLATION MATTER?
    4. WHAT DETERMINES INFLATION?
    5. INFLATION AFTER THE GREAT RECESSION
    6. APPLICATION: PREDICTING IF CENTRAL BANKS CAN ACHIEVE PRICE STABILITY
    7. NOTES
  12. CHAPTER 9 Interest Rates and Credit: Capital Markets in the Post–Great Recession World
    1. IMPERFECT GUIDANCE IN AN UNCERTAIN WORLD
    2. A LOOK AT ACTUAL HISTORY OVER THE LONG RUN
    3. CREDIT AND ADMINISTERED RATES
    4. IMPERFECT INFORMATION AND CREDIT
    5. CONCLUSION: SHIFT FROM HISTORICAL BENCHMARKS
    6. NOTES
  13. CHAPTER 10 Three-Dimensional Checkers: Open Economy, Capital Flows, and Exchange Rates
    1. NEWTON’S THIRD LAW
    2. INTRODUCING A NEW PRICE TO THE ANALYSIS: THE ROLE OF EXCHANGE RATES
    3. THREE-DIMENSIONAL CHECKERS ON AN INTERNATIONAL PLAYING FIELD
    4. A PERFECT MODEL IN AN IMPERFECT WORLD
    5. CONCLUDING REMARKS: FUTURE LOOKS DIFFERENT
    6. NOTES
  14. CHAPTER 11 Assessing Economic Policy in an Imperfect Economy
    1. GENERALIZED POLICY MODEL
    2. RULES AND REPUTATION: BEYOND ECONOMIC BENCHMARKS
    3. CONFRONTING OUR THREE MARKET IMPERFECTIONS
    4. ECONOMIC POLICY IN THE CONTEXT OF AN IMPERFECT ECONOMY
    5. NOTES
  15. About the Authors
    1. JOHN E. SILVIA
    2. AZHAR IQBAL
    3. SARAH WATT HOUSE
  16. Index
  17. EULA