Tag Archives: DSGE

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since March 2018. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE...

Abstract J M Keynes carefully read Adam Smith’s The Wealth of Nations (1776) before he was 28. Of extreme importance to Keynes was Smith’s categorization of a group of upper income class citizens, whose speculative and financial interactions with the private banking industry created a very severe danger to the society as a whole, as being projectors, imprudent risk takers, and prodigals. Keynes’s description of Smith’s projectors, imprudent risk takers, and prodigals in the General Theory,...

By William K. Black December 19, 2017     Bloomington, MN Lawrence J. Christiano was the lead author of the article announcing the Dilettante doctrine that I discussed in the first column in this series.  His ‘dilettante article’ claimed that modern macro got the last crisis so wrong because it ignored the ‘shadow’ financial sector.  I have found a 2008 article by him and two Minneapolis Fed co-authors that illustrates modern macro’s blindness to the shadow financial sector.  The article...

Although this sounds extremely harsh, it is the only way to describe aspects of DSGE macro such as the assumption that the level of interest rates is a key determinant of economic behaviour. In practice, this assumption is built into all mainstream models, and the empirical methodologies have no way of rejecting the assumption. It is not entirely an accident that the consensus has been shocked by the slow pace of recovery after modern recessions -- after all, it was believed that the level...

New paper by Wren-Lewis titled "Unravelling the New Classical Counter Revolution." It provides a strong New Keynesian critique of the New Classical/Real Business Cycle schools. He argues, correctly in my view, that the problem is the abandoning of the Keynesian method of analysis. I'm less keen on microfoundations. Or at least on marginalist microfoundations. But it is important to understand how much the fundamentalist views of Lucas and Prescott have affected the profession.From the...

 Who's your daddy? Just finished my summer macro class (last Friday actually; grades were due Monday). One of the things that always becomes important in the course is how to define the break between Keynes, or at least Keynes and the Old Neoclassical Synthesis, on the one hand, and Friedman and Lucas, in the case of the latter both the New Classical models (monetary misperception) and Real Business Cycle (RBC) models, on the other. Many authors suggest that Lucas should be considered,...