Keith Head

Takeshi Amemiya, a giant in econometrics, passed away. Rest in peace. economics.stanford.edu/news/takeshi-a…

Why would any country do anything for the US as long as Trump remains US president? 1. Trump does nothing for anybody. 2. He lies all the time. 3. He is rude & insults everybody but Putin, Xi, MBS & Kim Jong Un. 4. He never complies with any agreement.

@elonmusk False

True

@bohumilo @S_Surprenant Which Hayek article?

@S_Surprenant He has given Friedman award for the best economist of the contenders. Hayek may have been deeper thinker overall — he got award for the best econ article ever.

I am siding with Milton Friedman on that list. He made significant contributions to consumer theory and changed macroeconomics. And he is by far the most influential economist as regards public discourse. The man still lives rent free in the minds of political opponents who were born after he died. Krugman is another Nobel Prize winner and he had his day around the financial crisis, but no one's going to rant about Krugman in 2050. People still rant about things Friedman said in the 1970s.

@michaelxpettis If you don’t have an insightful critique to make at least don’t be so long winded.

Mainstream trade economists have recently been passing around this NBER Working Paper that, perhaps not surprisingly, reinforces the mainstream academic view of trade intervention. The paper argues that trade generally raises welfare by enabling specialization and exchange, that tariffs distort this system and so reduce welfare, and that while large countries may gain slightly through terms-of-trade manipulation, global retaliation and trade wars quickly eliminate those gains. While this may sound pretty conclusive, and seems to support the almost universal assumption by academic economists that trade intervention under any conditions always reduces welfare for the country that intervenes, it is important to understand the assumptions behind the model. A model is circular. It does not create new "truths" but rather restates the underlying assumptions in a logical (some would say "circular") way. Among other things this means that if the assumptions underlying a model are not fully consistent with real conditions, the conclusions of the model have no validity in the "real" world. Models can be very useful when widely accepted assumptions lead logically to a seemingly counterintuitive conclusion, but this is incredibly rare. Otherwise the role of economic models is mostly to create an air of scientific rigor for a decidedly non-scientific discipline. It turns out that this particular model depends on several strong assumptions. It assumes that firms are price takers, that there is free entry and exit in the global trading system, and that prices equal marginal cost (which means, among other things, that production isn't subsidized to an extent that significantly changes trading patterns). Most importantly, the model assumes that global trade is broadly balanced, i.e. that a change in exports by any country is matched by an equivalent chnage in imports. These are all very typical assumptions in a lot of academic trade models, not because they describe reality, but because they make it much easier to model, but not one of them is a reasonable description of the real world. They assume that we live and trade in the world of Econ 101, i.e. an idealized world of free and balanced trade, in which countries maximize global output by specializing in their areas of comparative advantage, and in which countries do not intervene in their external accounts. Like most academic trade models, in other words, it assumes a global trading system that clearly does not reflect the actual global trading system. Every one of the assumptions listed above is regularly violated, most obviously the assumption of broadly balanced trade. But based on this very unrealistic set of assumptions, it seems to suggest policy recommendations. Basically what this model (and most other mainstream trade models) tells us is that in a world of balanced and output-maximizing trade, if governments intervene to create trade imbalances, they will reduce total output. But that should be obvious. I fully agree with the conclusion, in other words, and if you start with an existing system that already maximizes global output, it is no great insight that any distortion in that system will reduce global output. The problem is that because the underlying assumptions are not clearly stated, and because there is no attempt to judge the validity of the conclusions under more realistic conditions, it is easy to conclude that even in the highly distorted, unbalanced global trading system of the real world, in which major economies use massive trade intervention to externalize the cost of domestic policy distortions, this paper implies that countries with open external accounts always benefit by keeping them open. But if we do in fact live in a global trading system in which some major governments already intervene heavily through trade and industrial policies, distorting trade in ways that create trade imbalances and reduce total output, wouldn't it follow that other governments that haven't done the same could subsequently implement trade and industrial policies designed to reverse these imbalances, in which case they would raise global output? I recognize that it is very hard to compose publishable papers on complex topics based on models that assume deep, persistent trade imbalances, firms that are not price takers, massive intervention on the part of major economies in their external accounts, trade patterns based not on comparative advantage but on competitive advantage, and the transmission of industrial policies from more closed economies to more open economies. But that, in fact, is the world in which we live. The conclusions of models that are built on a completely different set of assumptions may on occasion be intellectually interesting, but they should have little to no bearing on actual policymaking.

@huwsteenis @nfergus It’s not necessary to choose either economics or history. Knowledge of both way more valuable than just one or the other

An Oxford student magazine asked me this week: What do you wish you had known as a student that you know now? My answer started with a conversation at a Morgan Stanley CIO event that has stayed with me ever since. During the global financial crisis, @nfergus told me he wished more central bankers and financiers had studied history rather than economics. He was right. Reading economic history, including from emerging markets, has often more helpful than talking to conventional policymakers hooked on their fair-weather economic models. 🧵

@Jabaluck Even if we stipulate that this person has superior forecasting ability, it does not follow logically that the whole content of a tweet should be taken seriously

If someone with a demonstrably excellent forecasting record makes predictions that seem outlandish to you, the correct response is to update your beliefs, not mock them.

@elonmusk Maybe you should have stuck to those goals and stayed out of US and European politics.

Long time ago

Some of the strangest academic practices wind up in ed schools. Need to push back on this idea of "different ways of knowing": every normal country in the world teaches kids 5*7 by practice, identically. Insulting to think Pakistani, Québécois, or Ojibwe kids need unique lessons.

Modeling a multi-stage supply chain for electric vehicles from battery production to vehicle distribution, from @ckhead, Thierry Mayer, Marc Melitz, and Chenying Yang nber.org/papers/w34884

Cancelling the ChatGPT subscription, this is such a coward and dangerous move

@JonSteinsson This makes a lot of sense. Have you collected these arguments in a form we can cite?

This set of simple facts is growing over time and as it does it disciplines the models we work with more and more. I think this approach is very productive. Three cheers for calibration in my book. 10/10

I want to take a moment to defend calibration. A common critique of macro by non-macro people centers on the supposed lack of scientific rigor associated with calibration of models. 1/10

In several papers and one book, I have included a notation appendix, with a definition of every symbol. It's a great exercise for realizing the notation is cumbersome. And spares the reader the constant "what was theta again?" question and search to find the answer.

yeah but if you showed a million images of cats to a pile of sand and eventually it could identify cats i would be like this is the smartest fucking sand i've ever seen

New CEPR Discussion Paper - DP21184 Industrial policies for multi-stage production: The battle for battery-powered vehicles Keith Head @ckhead @UBCSauderSchool @UBC, Thierry Mayer @sciencespo @ScPoResearch @ScPoEcon @CEPII_Paris, Marc Melitz @Harvard @HarvardEcon, Chenying Yang @sgSMU ow.ly/S4r250YiKQN #CEPR_ITRE #EconTwitter

@jamesharrigan @cmicmeissner Amiti et al distinguish avg duty rates from avg tariff rates. i always thought of duty and tariff as synonyms. libertystreeteconomics.newyorkfed.org/2026/02/who-is…

@cmicmeissner What's wrong with "effective tariff"?

If we could get people to start saying “the average ad valorem equivalent tariff rate” instead of effective tariff rate it would be a win.

100% solidarity with Mary Amiti, Chris Flanagan, Sebastian Heise, and David Weinstein. Hassett's attack is disgusting. @NYFedResearch, @LibertyStEcon ft.com/content/731f8c… @mylesmccormick_, @FT

This is a serious breach of professional, legal, and scholarly ethics. washingtonpost.com/business/2026/…

@TradeDiversion His poorly reasoned criticism is less offensive than his call for authors to be disciplined.

Kevin Hassett condemning an analysis of the incidence of import tariffs that looks at import prices because he says one should also look at quantities. The second exhibit in libertystreeteconomics.newyorkfed.org/2026/02/who-is… is titled "China’s Share of U.S. Imports Has Fallen Markedly".