ABSTRACT
Academic economists have grosso modo turned their backs on applied macro models, while policy makers in many countries often continue to rely on calculations and predictions based on detailed and large-scale models. In international organizations such as the IMF, the OECD and the EC, macro models are customarily applied. The academic position in the debate is well known (see, for example, Smith, 1997, Chapter 15 in this volume and Wren-Lewis, 1997, Chapter 11 in this volume). Policy makers, however, have been less explicit. We intend to fill part of these blanks in relation to our own experience with applied macro models in the policy process. A second motivation for this chapter is to get a better understanding of the Dutch macromodelling industry. The products of this industry are used in the public policy debate, i.e. the market for economic diagnoses, ideas and policy prescriptions. This market is the topic of our investigation. One consequence of our choice of what is the relevant market for discussion is that we do not deal with forecasting activities, althoughadmittedly-forecasts often play an important role in policy processes. Our reasons to focus on this particular market are threefold. First, it concerns a public (i.e. readily observable) discussion on policy alternatives so that we have a relatively welldocumented subject. Second, the exchange of ideas on policies should be an important element of the value that is produced by the macro-modelling industry. Third, the structure of this market is particularly interesting. Essentially one buyer (the
government) is faced with one supplier (the Netherlands Bureau for Economic Analysis (CPB)). This mixture of monopolistic and monopsonistic elements leaves the market outcome in an ex ante sense undetermined, offering scope for (implicit) bargaining. A suboptimal market result cannot a priori be ruled out.
