In 1954, Klein's brief membership in the Communist Party was made public[1] and he was denied tenure at the University of Michigan, in the wake of the McCarthy era. Klein moved to the University of Oxford, and developed an economic model of the United Kingdom known as the Oxford model with Sir James Ball. Additionally, at the Institute of Statistics, Klein assisted with the creation of the British Savings Surveys, based upon the Michigan Surveys.
Return to the U.S.
In 1958 Klein returned to the U.S. to join the Department of Economics at the University of Pennsylvania. In 1959 he was awarded the John Bates Clark Medal, one of the two most prestigious awards in the field of economics. In 1968 he became the Benjamin Franklin Professor of Economics and Finance at Penn.
Brookings-SSRC Project
In the early 1960s Klein became the leader of the major "Brookings-SSRC Project" to construct a detailed econometric model to forecast the short-term development of the U.S. economy.
Wharton
Later in the '60s, Klein constructed the Wharton Econometric Forecasting Model. This model, considerably smaller than the Brookings model, achieved a very good reputation for its analysis of business conditions, used to forecast fluctuations including national product, exports, investments, and consumption, and to study the effect on them of changes in taxation, public expenditure, oil price, etc.
In 1969 Klein founded Wharton Econometric Forecasting Associates or WEFA (now IHS Global Insight), launching the econometric forecasting industry in the United States. Among his clients were General Electric Company, IBM, and Bethlehem Steel Corporation. He was the initiator of, and an active research leader in their LINK project, a consortium of model builders from many countries, which was also mentioned in his Nobel citation. The aim was to produce the world's first global economic model, linking models of many of the world's countries so that the effect of changes in the economy of one country are reflected in the other. LINK, which is now operated by the United Nations, is still meeting regularly, most recently in September 2018 in Santiago, Chile.
Klein served as a thesis advisor for numerous well-known economists including E. Roy Weintraub in the late 1960s.[citation needed]
His Nobel citation concludes that "few, if any, research workers in the empirical field of economic science, have had so many successors and such a large impact as Lawrence Klein". However, Christopher Sims has criticized the assumptions underlying large macro-econometric models built by Klein (Sims, 1980). Also, many economists have questioned the suitability of estimation methods employed by large structural models and the usefulness of simple autoregressive models for approximating economic systems.
In his final years, he was constructing short range "current quarter models" that use current economic indicators to get a handle on the rate of economic growth during the current and next quarter. In contrast to earlier efforts to model the economy structurally and to use constant adjustments and judgmental estimates for the exogenous variables, these systems are deliberately automatic and mechanical, simply translating available information into a statistically best estimate of current conditions. This represents a very different tradition from his earlier model building and applications.
After formal retirement and until his death he was engaged in macro econometric model building high-frequency models that project the economy within a short timeframe (e.g., monthly or quarterly). A publication on high frequency model containing countries such as US, China, Russia, India, Brazil, Mexico, Korea and Hong Kong was expected in 2008.
He died at the age of 93 in his home on October 20, 2013.[9]
Publications
Klein, Lawrence Robert (1970). An essay on the theory of economic prediction. Markham economics series (American ed.). Chicago: Markham Publishing Company. ISBN0-8410-2005-1. LCCN73122300.
Economic Fluctuations in the United States, 1921–41 (1950)
An Econometric Model of the United States, 1929–52 (with AS Goldberger, 1955)
An Introduction to Econometric Forecasting and Forecasting Models (1980) ISBN0-669-02896-7
Econometric Models As Guides for Decision Making (1982) ISBN0-02-917430-9
The Economics of Supply and Demand 1983
Economics, Econometrics and The LINK (with M Dutta, 1995) ISBN0-444-81787-5
China and India: Two Asian Economic Giants, Two Different Systems (2004). Article free downloadable at the journal Applied Econometrics and International Development http://www.usc.es/economet/aeid.htm
^De Vroey, Michel; Malgrange, Pierre (2012). "From The Keynesian Revolution to the Klein–Goldberger model: Klein and the Dynamization of Keynesian Theory". History of Economic Ideas. 20 (2): 113–136.
^Epstein, Roy J. (1987). A History of Econometrics. New York: North-Holland. pp. 114–140. ISBN0-444-70267-9.
Breit, William; Hirsch, Barry T., eds. (2004). Lives of the Laureates (4th ed.). Cambridge, Massachusetts: The MIT Press. ISBN0-262-52450-3.
Karayiannis, Anastassios D. (2009). "A Synopsis of Lawrence R. Klein's Thoughts and Contributions to Economics". In Puttaswamaiah, K. (ed.). Growth of Economics in the Twentieth Century. Enfield: Isle. pp. 579–592. ISBN978-0-9823895-2-2.
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