Lawrence Klein
Citation: For the creation of econometric models and the application to the analysis of economic fluctuations and economic policies.
The key idea
Build large-scale macroeconometric models of the entire economy. Feed in policy assumptions, simulate, compare outcomes.
The explanation
Klein built the Klein-Goldberger model (1955) and later the Wharton Econometric Model and Project LINK — a global federation of national models that could simulate cross-border effects. His approach dominated policy analysis for two decades before being challenged by the Lucas critique (1995).
Why Africa should care
The Quarterly Projection Models used by the Central Bank of Kenya, the South African Reserve Bank, and the IMF for surveillance are descendants of Klein's framework. Most African macroeconometric forecasts cited in budget speeches were generated by Klein-style structural models with locally-calibrated coefficients.
How to use it
When reading a 'multi-year growth forecast', ask which model produced it and what assumptions were made about exogenous variables (oil prices, US rates, China growth). The point estimate is rarely as informative as the assumptions.
Canonical works
- Lawrence R. Klein and Arthur S. Goldberger (1955) "An Econometric Model of the United States, 1929-1952" North-Holland
- Lawrence R. Klein et al. (1976) "Project LINK"
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