For example, one interesting question is whether economic growth since 1800 has been much faster than economic growth for the preceding 1500 years.
I believe that the answer is “yes,” based on a variety of indicators.
Unfortunately, in those cases, the list of potential causal factors is too long for the data to be able to distinguish.
I think that the best count of potential causes of the financial crisis is well into the twenties.
Chris Sims represents the opposite school of thought.
He believes in the triumph of state-of-the-art technique over weak data. He may be gifted and clever, but I have never found him persuasive. Can we economists agree that it is extremely hard work to squeeze truths from our data sets and what we genuinely understand will remain uncomfortably limited?Sophisticated empirical work consists of taking a single data set and using the best econometric techniques to arrive at estimates of the interesting parameters.In contrast, when I have an empirical question, I look at a variety of data sources.There is not much noise, but not much signal, either.The statistically valuable observations are episodes like the Great Depression or the recent downturn.I don’t know if it’s still true, but his professional reputation used to be very imposing. If you’re one of those people who regards Sims as super-human, then you probably will not be on my side in the controversy. We need words in our methodological vocabulary to express the limits.We need sensitivity analyses to make those limits transparent.Many of these can be found in chapter 2 of From Poverty to Prosperity, so I will not reproduce them here.The bottom line is that there are many ways to look at the question, and as far as I know, all of them point to essentially the same answer.Another question might be, in mortgage performance is borrower’s equity an important determinant of default?I am convinced that the answer is “yes.” Again, this is not because of any one study, but because of a variety of studies that have looked at default rates relative to original loan-to-value ratios, relative to estimates of current loan-to-value ratios, studies that compared default rates under different economic conditions, etc.