by Economics — spending time doing silly things 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? … That 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.” … If 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.
Topics:
Lars Pålsson Syll considers the following as important: Economics
This could be interesting, too:
Lars Pålsson Syll writes DSGE models — a total waste of time
Lars Pålsson Syll writes Was MMT right about inflation? Yes!
Lars Pålsson Syll writes Brownian motion (student stuff)
Lars Pålsson Syll writes Keynes — en ständigt aktuell inspiration
Economics — spending time doing silly things
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? …
That 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.” …
If 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.