Ex ante, these choices may be defended as reflecting the need for parsimony, logical consistency and tractability in model building; perhaps also the view that financial crises were rare. Clearly, those views need revising. Certainly, structural models were not very successful at forecasting the crisis. But I’m not certain that there were other tools out there which did better.
Non-linear models are outwardly attractive – think of the strong pro-cyclical features of the current euro area crisis, such as the market impact of credit downgrades or the feedback loop between sovereign and bank creditworthiness. But they do not necessarily deliver substantive gains in real time.7 Meta models or models which markedly over-fit the data are unlikely to help policy deliberations.