Sunday, July 15, 2012


Krugman explains that models are tools or simplifications that are used to solve a problem.  However, the assumptions of the model cannot be used to explain the implications of the model.  That would be circular.  Gadgets Versus Fundamentals (Wonkish) -

"The point is that all this work USES Dixit-Stiglitz, but it’s not ABOUT Dixit-Stiglitz; D-S is a gadget, a tool that helps you work with the fundamental issues, but you don’t ever want to forget that it is no more than that."

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