Economics — spending time doing silly things

14 June, 2016 at 19:26 | Posted in Economics | 3 Comments

Mainstream macro theory has not really helped out the finance industry, the Fed, or coffee house discussions. The reason … is basically that DSGE models don’t work …

But [if] DSGE models really don’t work, why do so many macroeconomists spend so much time on them? …

What if it’s signaling? …

no-sigThat suspicion was probably planted in 2005 … by a Japanese economist I knew … He gave me his advice on how to have an econ career: “First, do some hard math thing, like functional analysis. Then everyone will know you’re smart, and you can do easy stuff” …

I then watched a number of my grad school classmates go into macroeconomics. Their job market papers all were mainly theory papers, though – in keeping with typical macro practice – they had an empirical section that was usually closely related to the theory. The models all struck me as hopelessly unrealistic and silly, of course, and in private my classmates – the ones I talked to – agreed that this was the case, and said lots of mean things about DSGE modeling in general, basically saying “This is the game we have to play.” …

the_ministry_of_silly_walksIf macroeconomics research is a coordination game, and if the prevailing research paradigm is not really better than alternatives, then you probably want macroeconomists who are willing to “play the game”, as it were. So DSGE might be an expensive way of proving that you’re willing to spend a lot of time and effort doing silly stuff that the profession tells you to do.

Noah Smith



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  1. The picture of John Cleese doing the silly walk is absolutely perfect framing for this post.

  2. Surely silly work and mistakes must precede something more serious, in the way of getting better understanding. Be ready to occasionally make a fool of yourself in order to begin to accumulate real knowledge, which is not foolish at all!

  3. Chris Sims has a good defense of these models that I find somewhat convincing.

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