Truth or precision? Some reflections on the economists’ failure to predict the financial crisis

The failure of professional economic forecasters to predict the financial crises has led many to question the credibility of modern economics as a reliable foundation for economic policy. If economists were unable to foresee so big a crisis, how can they be trusted to cure or prevent it? Several accounts of this failure exist. The paper offers a tentative answer based on the lessons that may be drawn from the wisdom of a short list of past and present economists: Hayek, Neville Keynes, Mankiw, Tinbergen, Maynard Keynes and Lucas. The glue to keep such an odd bunch together is the distinction between truth and precision provided by science historian Ted Porter

Financing higher education in sub-Saharan Africa: some reflections and implications for sustainable development

The purpose of this article is to discuss how best to finance higher education in low-income countries of sub-Saharan Africa, drawing on benefits and drawbacks of the prevalent models of higher education finance, and lessons to be learned from countries which have seen greater expansion of their higher education systems in recent decades. Two main aspects are distinguished: first, a recognition of the powerful evidence that the general level of education in a country, its human capital, matters in determining a path to economic development; second, understanding that it does not help to produce large number of unemployed graduates whose only option due to absence of jobs is to engage in rent-seeking activities which in the end undermine both the essence of the human capital investment made, and job creation to be associated with human capital skills. Three areas are discussed, fully publicly financed “free” university education model; feasibility and lessons about fees; feasibility and lessons about loans. In addition, the paper makes suggestions on the measures to widen participation and promote equity and quality

Currency substitution and nonlinear error correction in Taiwan's demand for broad money

We modify the conventional money demand function by including a real exchange rate variable to reflect the effect of currency substitution. Empirical evidence indicates that the variable is crucial to the long-run stability of Taiwan's money demand. After finding the failure of a linear error-correction model (ECM) in describing the dynamics of Taiwan's money demand, we apply a nonlinear ECM to examine its dynamics and support the appropriateness of the nonlinear model empirically.

Modelling the general public's inflation expectations using the Michigan survey data

In this article we discuss a few models developed to explain the general public's inflation expectations formation and provide some relevant estimation results. Furthermore, we suggest a simple Bayesian learning model which could explain the expectations formation process on the individual level. When the model is aggregated to the population level it could explain not only the mean values, but also the variance of the public's inflation expectations. The estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation.