The Richard Stone Diagram of models, policies and plans

 

I came across the Model, Policies, and Plans diagram from the 1984 Nobel Prize winner Richard Stone. It attempts to explain the production process for economic knowledge. It is a helpful picture of how economists first blend facts and theory to form a model. A model is mixed with objectives to form policy. Controls on the policy will create a plan, and events will impact the plan, leading to our set of experiences. We then go back to the beginning and repeat. This is an iterative process. As we get new facts, we will adjust theories and models. In the case of monetary policy, we should ask how the Stone diagram works inside the Fed.