On This PageMarch 1990, No. 31

As cliches go, "The economy has changed significantly in recent years" ranks near the top in economics. The irony is that economic models—the formal ones that academics use or the rules of thumb that traders and businessmen employ-are almost always based on the premise that nothing has changed..

Smoothing Out the Business Cycle
Last Updated: 03/30/90

The problem is that history is all we have to build empirical models. There are no data on the future. So, examining how the economy has changed is the best-and only-way to try to discover how the economy's behavior may change in the future.

Put another way, understanding how the economy has changed can provide

insights into how conventional wisdom will probably be wrong.