After we have built a macro economic model in a spreadsheet from scratch, my clients often ask me: how can I further increase my knowledge of macro economic analysis? We have learned a lot in the workshops, but how can I analyze the economy of my island and create better financial and economic policies? Here are 7 tips I give them, to improve their knowledge through self study, in their day-to-day business:

How can you get better at using a macro economic model? Here are 7 tips, amongst others some which worked for me when I started using macro models years ago. These tips, still hold today:

1. Put the macro model on your desktop. This seems trivial. But it is not. If you  never touch the macro model, you will never master it. So you have to be able to quickly access the macro model.

2. Open the macro model at least once a day. This might sound funny. You have it on your desktop, now use it. Walk through the model, delete data, make it crash, update data, see what happens. If you use the model, you will get better.

3. Consider the macro model as your most important source of economic analysis. If you ever get a question about the economy, if you ever want to know about a figure, what should be your first reaction? Look at the data source of the macro model and at the core model in the spreadsheet. For me, this has become natural. Once you start considering the macro model as your source of economic analysis, and not just a spreadsheet, you start seeing that all the relevant data is already there, organized. That the main estimates and patterns of the economy are already there, organized for you. So your next step is starting analyzing the data, understanding the mechanisms, running impact analysis. I can’t tell you how important this is. If you do not use a consistent framework but you keep your analysis, figures etc. spread in several spreadsheets, it will be harder to see the whole picture and see the relationships between the data.

4. Improve the database and the model. Consider the model as a “work in progress”, as the “best framework we currently have to say something about your economy”. But it is a work in progress, it is not a static thing. Actually it will never finish. When new data about the economy becomes available, when you hear about new figures in a discussion, in a meeting, your “first instinct” should be: where can I update it in the model? Because new data can mean new crucial information, influencing the patterns in the economy. When you discuss with other policy officers or Ministers in your country about an economic topic, try to ask yourself, how does this influence your macro economic framework (macro model)? Which sectors (Fiscal, Real, Monetary, Household, External) is this discussion about? Which data are we using, and do I have this official data in my macro model? What are the assumptions regarding the working of the economy we are currently discussing about, and are these alternative assumptions I could use in my behavioural equations (future) in the macro model? And finally, it can happen that you talk about a micro topic or micro figures which you do not currently have in the macro model (like for instance the Hotels, Restaurants and Cafe sector). Try to gather these micro data and update your source database and try to relate this micro data to the main indicators in the macro model and the source database. By using the model and improving your knowledge and the model, you get better analysis.

5. Read daily newspapers. How does this relate to macro economic analysis? I consider newspapers as a tremendous source for economic analysis. Why? Because, every day you see what is currently happening, what people are interested in, what their concerns are. When you read the daily newspapers, try to ask yourself what the topic is about and what economic patterns are relevant in that topic. Who are the main stakeholders? What is at stake for them? Ask yourself what impact analysis you can make on the topic discussed, and how this influences the stakeholders and the wealth of the people of your country. When you do that, you have started translating the topic discussed in the newspaper, to economic analysis. You have collected another topic for your research agenda or for your future policy plan. A newspaper can give you the research agenda for the next months. Finally, newspapers learn you to do another interesting thing: to explain the outcome of “complex” economic analysis in lay mens terms. If you could explain your impact analysis or mechanisms in the macro model to the audience of daily newspapers, if you could translate your impact analysis in a easy to read policy note, you are grounded enough with your economic analysis.

6. Share your knowledge. By giving knowledge, you receive more knowledge, that’s my personal experience. That’s also the case with your research through the model. If you have an assumption and you can share it with other people, consider doing this. By sharing information with trusted stakeholders or policy officers, you receive more information and you get a better, complete, view of the economy. Consider the model as a communication tool. The model stimulates you to communicate with several other professionals (in the external sector, the real sector, the household sector, the monetary sector) because it has all these “views” in it as sectors. All these sectors influence each other and are interelated. That’s the power of the macro model. By combining all these views you get a picture of the whole economy of your country.

7. Never say: the model says that… I mean it. This is the best tip I can give you, and that’s why I saved it for the last. The model is an instrument, a tool for economic analysis. You are the boss. It is your analysis, not the model’s. You can do all kind of analysis with the model, it does not care. You should always see and check if you understand the output of the macro model. Do you agree with the results of your impact analysis? Is this outcome plausible? Some people think, we can predict the future with macro models. This is not possible. Do you really think I would be sitting here if I could predict the future with my macro economic models? Consider the output of the model as the best consistent analysis of patterns you can give. The strenght of the model is not in predicting the future, but in doing what-if impact analysis. Understanding how things are possibly related in the economy.