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Reasons to dislike DSGE models

Summary:
Reasons to dislike DSGE models First: 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 Advertisements

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Reasons to dislike DSGE models

Reasons to dislike DSGE modelsFirst: 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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Lars Pålsson Syll
Professor at Malmö University. Primary research interest - the philosophy, history and methodology of economics.

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