Lutz Hendricks - UNC - Department of Economics

Micro Versus Macro

Why do macro models look so different from micro models?

A caricature:

Why do researchers in the same profession, often studying the same question, write down models that look so different?

I think the answer is that applied micro economists view models very differently from macro economists.

In macro, a model is a proof of concept. It is a reasonable model with reasonable parameters that demonstrates that a particular mechanism can be big.

In micro, a model is a close approximation of the true data generating process (that’s why there is so much emphasis on hypothesis testing). The quantitative answers are taken seriously.

Last updated: 2016-Dec