What are economic models?

A model is a simplified depiction of a part of the real world. Such a depiction is always useful, if we want to test a new idea but not in the real world. All models are used to answer specific questions in cases where we cannot infer the answer from directly observing what happens in reality.

In economics, models consist of mathematical equations. Such equations describe how a part of our reality works in a simplified yet consistent way. We use these models to show how climate policy induces technological change or what economic consequences a transition to a renewable energy system might have.

A model does not need to describe all aspects of reality, rather it has to be fit for purpose. Furthermore, it should be internally consistent and we need to show that it is both credible and that its results are robust.