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The Institute for New Economic Thinking and Imperfect Knowledge Economics
In this time of global economic turmoil, where is economics headed? Can we reform our economies without reforming how we understand economic behavior, market outcomes, and macroeconomic policy?
At the meeting of its Governing Board in October 2011, the Institute for New Economic Thinking (INET) selected Imperfect Knowledge Economics (IKE) as one of its main research programs. The INET Program on Imperfect Knowledge Economics was launched on April 12, 2012, by INET Executive Director Robert Johnson at the Institute’s Annual Plenary Conference in Berlin.
IKE’s hallmark is its recognition of the importance of non-routine change and imperfect knowledge for understanding asset markets and the consequences of economic policy. Beyond providing an alternative approach to macroeconomics and finance modeling, opening economic analysis to non-routine change requires rethinking conventional approaches to empirical research, which have assumed away the importance of such change. To foster this rethinking, INET also approved funding for the creation of the INET Center for Imperfect Knowledge Economics at the University of Copenhagen, which was launched on April 16, 2012, by Johnson and INET founder George Soros.
Over the last few decades, the University of Copenhagen has become widely known for pioneering and developing an alternative econometric methodology that makes use of the cointegrated var (CVAR) model. The CVAR-based methodology has proven to be remarkably fruitful in uncovering regularities in how market outcomes unfold over time. The INET Center on Imperfect Knowledge Economics at the University of Copenhagen will harness and extend this methodology to explore how to confront with empirical evidence models that recognize that market participants and policymakers must cope with inherently imperfect knowledge.