Interesting trivia

While it is widely believed that Keynes founded the discipline of modern macroeconomics, the first national macroeconomics model was developed by Jan Tinbergen, a Dutch economist who won the first Nobel Prize in the field of economics.  He had developed the model for Netherlands and later applied it to the economy of US and UK. In his Nobel Prize Lecture, Christopher Sims talks about the model developed by Jan Tinbergen. He says that the macroeconomic model that Tinbergen developed was a statistical model with multiple equations and error terms trying to explain the economy. This model was criticized by Keynes and he was of the opinion that any model with error terms can not be used as a testing ground for theory since error terms are random and can explain any random theory. But Haavelmo(who won a Nobel Prize in economics in 1989) defended Tinbergen against Keynes. He argued that an economic system can be seen as a probability model where the observed data are realized outcomes form some probability distributions and hence it is possible to test the theories using a statistical model.

It is interesting to note how close-knit the economics community was at that time. Jan Tinbergen had shared his Nobel Prize with Ragner Frisch who is known for having founded the discipline of Econometrics. In 1933, he coined the term ‘microeconomics/macroeconomics’ and was the first person to formally acknowledge the difference between macroeconomics and microeconomics. Haavelmo, who defended Tinbergen against Keynes was Ragnar’s research assistant and he also won a Nobel Prize in 1989 for his work on probability theory and analysis of simultaneous economic structures.

A very interesting summary of the debate between Keynes and Tinbergen (famously known as the Tinbergen debate) can be found here :