Micro Versus Macro¶
Why do macro models look so different from micro models?
- A macro model:
- Has 7 parameters which are calibrated to match 7 data moments.
- Has decision rules that only depend on a few state variables.
- A micro model:
- Has 700 parameters which are estimated so that the model replicates the complete life histories of everyone in a dataset.
- All decisions a person ever makes in life are modeled.
- There are preference shocks everywhere.
- Decision rules depend on everything the researcher can observe.
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