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Kohler's spurt and settle and the Lucas critique

Comments on Alan Kohler “Rough trade”, 20/05/2009, http://www.businessspectator.com.au/bs.nsf/Article/terms-of-trade-pd20090520-S7T7P?OpenDocument&src=rab

Alan, I like your words of spurt and settle.

Further, I like the comments on many budget and business models – including government's, that they are based on spurt not on settle. Neither is always correct and those based on spurt are wrong in settle times. This is particularly pertinent now in the wake of Federal budget and the Treasury economic forecast underpinning the budget position trajectory. Many economists have commented that the forecast of economic growth at well above the trend rate for continuous six years or more were too optimistic. But the government, the PM and his Treasurer have been saying just the opposite - they are conservative estimates has been what they have said. What an interesting confusion and amusement! It has been an exciting time, isn't it?

This just reminds me about the Lucas critique on macroeconomic modelling a few decades ago before the rational expectations revolution. All modellers should heed what Lucas said and always keep that in mind when approaching economic and business modelling.

Elsewhere I have commented on the Treasury/government's economic forecast for the next 10 years or so, including comments on Treasury Secretary Ken Henry's defence of that forecast. You and your readers might find those of some interest. They appear to have got their model key parameters incorrect, similar to using spurt when it should be something different. See http://mrlincolns.blogspot.com/2009/05/paradox-of-treasury-economic-forecast.html, http://mrlincolns.blogspot.com/2009/05/underatndably-henry-denfends.html, http://mrlincolns.blogspot.com/2009/05/critique-of-treasury-economic-forecast.html and http://mrlincolns.blogspot.com/2009/05/swan-budget09-my-first-response.html.

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