<p>Suppose you have a particular view on the state of an economy, let's say for sake of argument, that China is slowing down.</p>

<p>My question here is: Using aggregate levels of macroeconomic data (this could be any sort of data that is available on interest rates, PMI data, CPI, unemployment, everything), how would one go about working this into a model which would be simultaneously (running in the background) be giving an indicator of if an economy was slowing down or not.</p>

<p>What i'm really after is just your ideas, knowledge, and any references to this sort of problem in literature/practice. This isn't an exam type question, but more of a personal project type thing I was interested in looking at.</p>

<p>If there were ideas of how the model would look, what the model's indicators would suggest, all would be really helpful in me exploring this idea.</p>

CC BY-SA 3.0
2016-06-29T22:46:57.493Z
While the practice of wanting to back up a conviction with a model may be widespread among economists, this is actually bad practice. Ideally your goal should be making a good model to forecast China's growth. Then using the model you can see if it is slowing down - or not. Building a model with a result already in mind is bad science. (It may be good marketing for selling something, e.g. gold.)
Giskard
CC BY-SA 3.0
2016-06-30T01:54:06.940Z
@denesp makes a good argument, but let's not overlook, or be critical towards, the situation in which the economist is interested in "the scenario" (or possibility) that China is slowing down. In this situation (a sort of "what-if" case), a global model would be useful; for example, NiGEM or a GVAR. Here's just one such example: https://www.imf.org/external/pubs/ft/wp/2016/wp1663.pdf
Graeme Walsh
CC BY-SA 3.0
2016-06-30T06:50:15.043Z
@GraemeWalsh Indeed. Though in this case "China is slowing down" is the premise of the model. The results of the model do not support or provide argument against the statement that China is slowing down.
Giskard
CC BY-SA 3.0
2016-06-30T08:28:40.937Z
@denesp Agreed. For this reason, I think the OP should rephrase the question, perhaps replacing "validate" with "organize" or something along those lines. The model ought to put in place a framework for thinking about and investigating the topic. Regarding priors, as long as they are revealed in a transparent way, I don't think there's anything wrong with them per se.
Graeme Walsh
CC BY-SA 3.0
2016-06-30T10:27:27.537Z
@GraemeWalsh - Thanks so far both. Graeme, you are absolutely correct, I intended for this 'model' to be independent in a sense, giving a view on macroeconomic developments which one could then refer to to compare with their view on what's happening. It's not a case of the model or the opinion being right or wrong, but just another confirmation where they align. I've updated the post accordingly.
Curious Student
<macroeconomics>
Building a (relatively simple) Model which indicates macroeconomic movements
Curious Student
# Building a (relatively simple) Model which indicates macroeconomic movements

(Asked by: username_0 on 2016-06-29)

Suppose you have a particular view on the state of an economy, let's say for sake of argument, that China is slowing down.

My question here is: Using aggregate levels of macroeconomic data (this could be any sort of data that is available on interest rates, PMI data, CPI, unemployment, everything), how would one go about working this into a model which would be simultaneously (running in the background) be giving an indicator of if an economy was slowing down or not.

What i'm really after is just your ideas, knowledge, and any references to this sort of problem in literature/practice. This isn't an exam type question, but more of a personal project type thing I was interested in looking at.

If there were ideas of how the model would look, what the model's indicators would suggest, all would be really helpful in me exploring this idea.

**Tags:** macroeconomics
> **Comments:**
> **username_1**: While the practice of wanting to back up a conviction with a model may be widespread among economists, this is actually bad practice. Ideally your goal should be making a good model to forecast China's growth. Then using the model you can see if it is slowing down - or not. Building a model with a result already in mind is bad science. (It may be good marketing for selling something, e.g. gold.)  
> **username_2**: @denesp makes a good argument, but let's not overlook, or be critical towards, the situation in which the economist is interested in "the scenario" (or possibility) that China is slowing down. In this situation (a sort of "what-if" case), a global model would be useful; for example, NiGEM or a GVAR. Here's just one such example: https://www.imf.org/external/pubs/ft/wp/2016/wp1663.pdf  
> **username_1**: @GraemeWalsh Indeed. Though in this case "China is slowing down" is the premise of the model. The results of the model do not support or provide argument against the statement that China is slowing down.  
> **username_2**: @denesp Agreed. For this reason, I think the OP should rephrase the question, perhaps replacing "validate" with "organize" or something along those lines. The model ought to put in place a framework for thinking about and investigating the topic. Regarding priors, as long as they are revealed in a transparent way, I don't think there's anything wrong with them per se.  
> **username_0**: @GraemeWalsh - Thanks so far both. Graeme, you are absolutely correct, I intended for this 'model' to be independent in a sense, giving a view on macroeconomic developments which one could then refer to to compare with their view on what's happening. It's not a case of the model or the opinion being right or wrong, but just another confirmation where they align. I've updated the post accordingly.  

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