Lars P. Syll

Several mainstream economists still believe that ‘any interesting model must be a dynamic stochastic general equilibrium model. From this perspective, there is no other game in town. If you have an interesting and coherent story to tell, you can tell it in a DSGE model. If you cannot, your story is incoherent’ (V.V. Chair). Similarly, not very long ago, Blanchard (2014, p. 31) was affirming that the solution to previous mistakes was that ‘DSGE models should be expanded to...

Post-real macroeconomics — science as fraud There are many kinds of useless economics held in high regard within mainstream economics establishment today . Few — as Paul Romer recently has been arguing — are less deserved than the post-real macroeconomic theory – mostly connected with Nobel laureates Finn Kydland, Robert Lucas,  Edward Prescott and Thomas Sargent – called calibration. In an interview by Seppo Honkapohja and Lee Evans (Macroeconomic...

Paul Romer on macroeconomics as a religious dogma  [embedded content]

The dividing line between bad and good macroeconomics If I am right that in recent decades the equilibrium in post-real macro has discouraged good science … there is some risk that a rear-guard of post-real macroeconomists will continue to defend their notion of methodological purity. At this point it is hard to know whether this group will fracture or dig in for a fight to death. If they dig in, I suspect that it will be in a few departments and that the...

James Tobin on post-real macroeconomics James Tobin explained why real business cycle theory and microfounded DSGE models are such a total waste of time. Thirty years before Paul Romer. Maybe one should start teaching some history of economic thought at economics departments again? Just a thought … They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions...

– The models are rubbish. – Don’t be silly. There’s a paper from the 1980s on learning effects. Jo Michell

‘Modern’ macroeconomics — a costly waste of time Commenting on the state of standard modern macroeconomics, Willem Buiter argues that neither New Classical nor New Keynesian microfounded DSGE macro models have helped us foresee, understand or craft solutions to the problems of today’s economies: The Monetary Policy Committee of the Bank of England I was privileged to be a ‘founder’ external member of during the years 1997-2000 contained, like its successor...

Stiglitz and the demise of marginal productivity theory Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. Contrary to the rising-tide hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown. The...

Romer follows up his critique The one reaction that puzzles me goes something like this: “Romer’s critique of RBC models is dated; we’ve known all along that those models make no sense.” If we know that the RBC model makes no sense, why was it left as the core of the DSGE model? Those phlogiston shocks are still there. Now they are mixed together with a bunch of other made-up shocks. Moreover, I see no reason to be confident about what we will learn if some...

Wren-Lewis trivializing Romer’s critique As yours truly wrote last week, there has been much discussion going on in the economics academia on Paul Romer’s recent critique of ‘modern’ macroeconomics. Now Oxford professor Simon Wren-Lewis has a blog post up arguing that Romer’s critique is unfair and wide of the mark in places … Paul’s discussion of real effects from monetary policy, and the insistence on productivity shocks as business cycle drivers, is...