Wednesday, November 22, 2006

Bernanke's New Monetary Policy Tinker Toy

How comforting to read that Federal Reserve Chairman Ben Bernanke is working on a new computer "factor model" program to determine monetary policy. Lanman's Bloomberg article doesn't go into the details, which is probably a good thing, being as econometrics is not amusing unless you're a mathematics geek.

In the same article, we read this:

'Bernanke, 52, also found that computers have their limits. As part of his research at Princeton, he ran a program to see what would have happened if a computer had set monetary policy from 1987 to '98. Forecasts from Bernanke's factor model were fed into the program, which adjusted rates based on certain rules. The result: Inflation and unemployment fluctuated by larger amounts than in real life, proof that Fed officials are better than software at making calls on interest rates. "We find this evidence for human superiority comforting,'' Bernanke wrote.'

Wait a minute. I thought he was playing around with another such computer model. Is he forging ahead with this idea in spite of his own research? Hmm.

If we thought Greenspan was difficult to understand, wait until we get their interpretation of the Tinker Toy From Econometric Hell.

Tinker Toy
[Thanks to for this one.]


Post a Comment

Links to this post:

Create a Link

<< Home