ISAAH MHLANGA: In defence of economic models
They are just a part of policy decisions — they are not the policy
In her most recent Business Day column Mamokete Lijane argued that the economic models applied by policymakers are calibrated on the prepandemic structure of the economy, which no longer exists and will therefore lead to wrong forecasts and policy responses, and undesirable economic outcomes (“Policymaking based on the past can lead to big, persistent errors (https://www.businesslive.co.za/bd/opinion/columnists/2021-06-22-mamokete-lijane-policy-making-based-on-the-past-can-lead-to-big-persistent-errors/)”, June 22). In defence of economic models and their use, I wish to disprove this interpretation.
Lijane concluded her piece in no uncertain terms by shooting down the SA Reserve Bank’s quarterly projection model (QPM) as outdated, and suggested its policy rate guidance should be ignored. I argue that interpretation of economic models in general, and their use, lack the nuance that is involved in economic modelling, and that her conclusion that model outcomes should just be i...