I thought I might highlight this passage from an interview the Cleveland Fed conduct with Laurence Meyer, a former Fed governor who also founded the consulting firm Macroeconomic Advisers. The content of his assertions sound completely insane, and yet to the best of my knowledge are 100 percent true:
I was educated at MIT. I was a research assistant to Franco Modigliani, Nobel laureate, and the director of the project on the large-scale model that was used at the time at the Federal Reserve Board. This is the beginning of modern macro-econometric model building. That’s the kind of models that I would use, the kind of models that folks at the Board use.
There’s also another tradition that began to build up in the late seventies to early eighties — the real business cycle or neoclassical models. It’s what’s taught in graduate schools. It’s the only kind of paper that can be published in journals. It is called “modern macroeconomics.”
Think about that for a second. The field of macroeconomics features two kinds of models. One is the kind that policymakers and private sector forecasters use. The other is the kind that’s taught in graduate schools and can get published in academic papers. And this isn’t like how physics departments talk about general relativity but practical engineers can get by with Newtonian mechanics as a workable approximation. The two kinds of models are genuinely incompatible.
It seems like something people working in the profession might want to try to put some time into working on.
I would further note that this tends to introduce some weird dissonances into the political conversation because there’s an ideological valence to the methodological dispute. Basically the “modern macroeconomics” approach only appeals to people with right-of-center views and also only appeals to non-policymakers. So when conservative politicians are in office, they turn to the Mankiws and Feldsteins and Bernankes of the world who share an analytic approach with left-of-center economists. But when progressive politicians are in office and it’s convenient to exaggerate the scope of disagreement, there’s this whole other army of people using a totally different methodology you can turn to.