Thread by @econ_stardust

This week @tom_krebs_ published a study about the effects of an #embargo on Russian gas on the German economy. I am among those that are disappointed about the scientific quality of the study. In this 🧵I will try to explain why using what Tom has taught me in our encounters.

One workshop that changed my life took place in Glasgow in 2008. @tom_krebs_ was among the seniors (including @Wouter_Den_Haan). He had several helpful comments on the paper and was in general quite helpful. If I had presented his study, this is what he would have said:

1 - Don't multiply your result by 5 and add 4.

If you think cascade effects are important, include them in your model. If you think demand effects matter, model them! Don't be lazy and take shortcuts.

2- To include those effects in the model matters!

The model serves as disciplinary device. Otherwise the results will be arbitrary.

Households and firms will change their behavior if prices change and the environment change. This is one of the cornerstones of modern macro ...

and should be therefore modeled. Otherwise policy conclusions will be inconsistent with household and firm behavior.

3 - Don't report a simple number as policy advice!

Most people will not read the study and simply use it as an argument without given the analysis much thought or to understand its weaknesses.

This is how I imagine, the presentation would have been in 2008.

Tom, I am happy to learn why the arguments do not apply in this context or even you would have responded differently.