Do DSGE Models Have a Future?
Olivier Blanchard:
Do DSGE Models Have a Future?: DSGE models have come to play a dominant role in macroeconomic research. Some see them as the sign that macroeconomics has become a mature science, organized around a microfounded common core. Others see them as a dangerous dead end.
I believe the first claim is exaggerated and the second is wrong. I see the current DSGE models as seriously flawed, but they are eminently improvable and central to the future of macroeconomics. To improve, however, they have to become less insular, by drawing on a much broader body of economic research. They also have to become less imperialistic and accept to share the scene with other approaches to modelization.
For those who are not macroeconomists, or for those macroeconomists who lived on a desert island for the last 20 years, here is a brief refresher. DSGE stands for “dynamic stochastic general equilibrium.” The models are indeed dynamic, stochastic, and characterize the general equilibrium of the economy. They make three strategic modeling choices: First, the behavior of consumers, firms, and financial intermediaries, when present, is formally derived from microfoundations. Second, the underlying economic environment is that of a competitive economy, but with a number of essential distortions added, from nominal rigidities to monopoly power to information problems. Third, the model is estimated as a system, rather than equation by equation in the previous generations of macroeconomic models. The earliest DSGE model, representing an economy without distortions, was the Real Business Cycle model developed by Edward C. Prescott and focused on the effects of productivity shocks. In later incarnations, a wider set of distortions, and a wider set of shocks, has come to play a larger role, and current DSGE models are best seen as large- scale versions of the New Keynesian model, which empha- sizes nominal rigidities and a role for aggregate demand.[1]
There are many reasons to dislike current DSGE models. …
Source: http://economistsview.typepad.com/economistsview/2016/08/do-dsge-models-have-a-future.html
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Please Help Support BeforeitsNews by trying our Natural Health Products below!
Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST
Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!
HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.
Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.
MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser! Cleans out toxic buildup with oxygen!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover - Reduces Smart Meter radiation by 96%! (See Video).