“Toy Models” and “Stylized Facts”

12 June 2009

I’ve been at a couple of different conferences over the last two weeks, both very different in content (immigration vs. law/econ) and style (20 papers vs. 7 papers over two days). This has given me a little time to ruminate over fad phrases in economics.

The one that seems to be running around these days is “toy model”. I’m not sure where this started, but I think it’s dumb. What do people mean when they say this? That’s is a partial equilibrium model? Then why not say that? It seems to me to be a way for empirical folks to say that they wrote down a model, but they don’t think it’s got much relation to reality or the empirical work that follows. If you write down a model, you should be willing to defend it. If you think it’s not very complete, then why do it? Just refer to it as “the model” and be done with it.

A phrase I hadn’t heard in a while, but which showed up at one of the conferences was “stylized fact”. I also don’t know where this got started, although I seem to remember hearing it a lot from Harvard and MIT grad students on the market when I was a grad student at Michigan. I have always wondered exactly what is a “stylized” fact. Does that me that it is somehow not true? Or that it’s a simplified version of reality? I am glad that this fad phrase seems to have goneout of fashion, because like “toy model,” I think it’s just dumb — one of those phrases that economists utter to show that they’re “in the club” that generally have little or no content.

Thankfully, I have never heard anyone say that they were going to employ a “toy model” to try to explain the “stylized facts”!

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