# 13-200/VI (2013-12-16)

Author(s)
Koen Vermeylen, University of Amsterdam
Keywords:
modern macroeconomics, methodology, descriptive, prescriptive, discount rate
JEL codes:
B22, B41, E13, O44, Q52, Q54

Critics of modern macroeconomics often raise concerns about unwarranted welfare conclusions and data mining. This paper illustrates these concerns with a thought experiment, based on the debate in environmental economics about the appropriate discount rate in climate change analyses: I set up an economy where a social evaluator wants to determine the optimal time path of emission levels, and seeks advice for this from an old-style neo-classical macroeconomist
and a new neo-classical (modern) macroeconomist; I then describe how both economists analyze the economy, their policy advice, and their mistakes.
I then use the insights from this thought experiment to point out some pitfalls of the modern macroeconomic methodology.