Reasons to dislike DSGE models

16 September, 2018 at 18:57 | Posted in Economics | 1 Comment

wrong-tool-by-jerome-awFirst: They are based on unappealing assumptions. Not just simplifying assumptions, as any model must, but assumptions profoundly at odds with what we know about consumers and firms …

Second: Their standard method of estimation, which is a mix of calibration and Bayesian estimation, is unconvincing …

Third: While the models can formally be used for normative​ purposes, normative implications are not convincing …

Fourth: DSGE models are bad communication devices …

Olivier Blanchard

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1 Comment

  1. Blanchard’s critique is solipsistic.


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