Reconstructing macroeconomics6 August, 2015 at 16:27 | Posted in Economics | 2 Comments
Olivier Blanchard says that, currently, DSGE models have “much too much in them to be fully understood”. There is a rationale for studying a model that we do not understand–if and only if it makes predictions that fit the world. If one has such a model that makes reliable predictions, studying it is a not-implausible road to understanding the world, because maybe, just maybe, an understanding of the model will carry an understanding of the world along with it as a bonus. And there is a rationale for taking models we understand and seeing where and how they fit the world in order to help us iterate toward a better model that fits better.
But is there a case for investigating models we (a) do not understand that (b) do not fit the world? Even if we were to reach the point of understanding the model and how it works, what would that gain us?
Just questions. And the answers are — No. Nothing.