Your Grandfather’s Model (Is Your Model too)

From John Taylor’s post on the fed’s model error:

The solid black line plots changes in the estimated sacrifice ratio of unemployment to changes in inflation implied by the model over 64 vintages.

 

Could easily be an actuary’s pricing model. That’s overfitting, folks. Responding to specific (recent) data points without and real generalizability. We must be humble in what we can know about very complex things.

One thought on “Your Grandfather’s Model (Is Your Model too)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s