The Empiricists are Catching On

[ThreeTrees]

Credit booms gone bust

From the article:

Past credit growth spectacularly improves the forecasting power of an early warning banking crisis model in our data. Using long-run historical data, the growth rate of lending emerges as the single best predictor of future financial instability, a result which is robust to the inclusion of various other nominal and real variables.

Whoda thunk it?

[krazy_kaju]

More proof of how theory is always a step ahead of “evidence.”

[Caley_McKibbin]

They still basically say that bailout policy is good.

[krazy_kaju]

@Caley McKibbin

They still basically say that bailout policy is good.

Don’t worry; soon they will discover some mathematical theorem and connect it with evidence that once and for all proves that bailouts are bad! haha

[laminustacitus]

@krazy kaju

More proof of how theory is always a step ahead of “evidence.”

This is technically false since theory is not literally “a step ahead of ‘evidence’” since one requires a theory in order to make any sense of empirical data whatsoever. In fact, one could soundly assert that the evidence has always been in front of the theorist, but he never had the proper theory in order to make the evidence understandable.

[krazy_kaju]

@laminustacitus

one requires a theory in order to make any sense of empirical data whatsoever

Touche. This is very true.