"The fiendlike skill we display in the invention of all manner of death-dealing engines, the vindictiveness with which we carry on wars, and the misery and desolation that follow in their train, are enough in themselves to distinguish the white civilized man as the most ferocious animal on the face of the earth".
A century and a half after Herman Melville wrote these words in Typee, further instruments of doom are being added to the white civilized man’s burden, many of which are commonly related to scientific and technological breakthroughs. Misfortune tellers are having a field day predicting the worst-ever millennium and exploiting the threats posed by the swift change we now experience.
There are, however, rational ways of apprehending the future and its dangers, of mapping the patterns elicited from past history and today’s trends, as well as the emergence of new opportunities.
Rationality alone is not enough to allay fin de millénaire gloom, but it helps. The ten Nobel Laureates and the international experts invited in Milan are asked to act as "mankind’s civil servants" - as Husserl, who was one of them, said - and to reflect upon what lies ahead.
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Use of Econometric Models in an Uncertain Environment
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Thursday 4 December 1997
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In economics, a model is a simplified scheme to show how the agents of the system (households, business establishments, public offices, and other institutions of society) interact with one another to establish the inputs, outputs, and market-clearing magnitudes (prices, wages, interest rates) that make up our daily lives. All living is not governed by economics; so these systems must be consistent with social relations, climate, geography and other aspects of our daily lives.
A main feature of such system is that they are nonexperimental; they fall within the realm of social science, which studies human behavior. It must also be emphasized that in dealing with human populations for our database we naturally incur a great deal of error; consequently our social science has a high noise-to-signal ratio, much larger than in most experimental sciences and even in some nonexperimental sciences.
There are two main branches of economics - microeconomics and macroeconomics. There are many relevant studies in both branches, and I shall provide examples of both, but my principal preoccupation is with macromodels of the economy as a whole, meaning a country, regional groupings of countries, and the entire world.
In order to make economic policy in the public sector, to plan business developments in the private sector, or to inform households about such things as labor market conditions or investment prospects it is necessary to be able to assess where an economy stands at the moment or where it is headed in the near future. Such forecasting is inescapable, but it is certainly not easy, nor is it free of noise and error.
In addition to forecasting, econometric models are frequently used for addressing "what if" questions. These are simulations of plausible alternatives. They may be used in the private sector to determine the range of possibilities of future economic environments. They are used often in the public sector to determine the expected effects of economic policy.
It is frequently said that economic forecasting is highly inaccurate and not a suitable guide for the formulation of economic policy. Personally, I believe that such charges are incorrect and that we did anticipate many major changes in economic performance, including the inflation of the 1970s.
Nevertheless, the scholarly quest for better economic information and forecasts continues to stimulate research. Given the enormous jump in computer power (from both hardware and software) and given the enormous flow of significant information on a refined (high) frequency basis, we aim our research at improving the quality of forecasts.
Some examples of the use of models for public policy formation and forecasting at both national and international levels are presented. Models are currently being used to chart the future of the Chinese economy in its stage of transition to a market system of pricing. The data base is not as fully developed for China, as in the advanced industrial economies. Nevertheless some interesting applications are possible.
Given the extreme interest at this moment in the financial turbulence in East Asia, an example is presented to help our understanding of the developments that are taking place.
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