Routledge Handbook of Macroeconomic Methodology

24 Using macroeconomic models in policy practice The relationship between models and reality

Frank A. G. den Butter

DOI: 10.4324/9781315745992-29

Introduction

There are three ways to use economic models in practical policy analysis. A first way is through theoretical models which describe and interrelate the individual choice behaviour of economic subjects on the basis of the rationality postulate. This yields qualitative statements about how policy measures may affect the choice behaviour and therefore about the welfare effects of the policy. A second way is quantitatively to examine the choice behaviour at the individual level. Methods used here range from a simple descriptive-static analysis of data to advanced econometric estimates of ...