Tag Archives: DSGE model

On Noahpinion.

In a VoxEU eBook, Refet Gürkaynak and Cédric Tille collect the views of central bank and academic economists on DSGE models. In the introduction to the eBook, Gürkaynak and Tille summarize these views as follows: … there is agreement on the place of DSGE models in policy analysis. All see these models as part of the policymaker tool kit, while understanding their limitations and perceiving a similar road ahead.

The “Trouble with Macroeconomics,” according to a working paper by Paul Romer that is posted on his website, relates to dishonest identification assumptions, in particular in DSGE models used for policy analysis. Romer singles out calibration, assumptions about distribution functions and strong priors as culprits. Romer argues that [b]eing a Bayesian means that your software never barfs and I agree with the harsh judgment by Lucas and Sargent (1979) that the large Keynesian macro models...