“DSGE Models Are Just Arbitrage-Free Pricing Models” — Brian Romanchuk

Summary:
The easiest way to understand DSGE macro models are that they are just arbitrage-free pricing models. If one understands how arbitrage-free pricing models are used in fixed income analysis, one can immediately grasp what a DSGE model can -- and cannot -- do.I owe this observation to Warren Mosler, who noted this in a conversation. Beyond that, I am unsure who has also noted this. Since option-pricing models are one class of models within the Dyamic Stochastic General Equilibrium family, the observation should not be controversial -- but the implications of the "just" in the sentence would presumably be.... Bond Economics"DSGE Models Are Just Arbitrage-Free Pricing Models"Brian Romanchuk

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