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The DSGE models

Why DSGEs crash during crises by David F. Hendry, Grayham E. Mizon
Wed, 2014-09-24 14:22

Many central banks rely on dynamic stochastic general equilibrium models – known as DSGEs to cognoscenti. This column – which is more technical than most Vox columns – argues that the models’ mathematical basis fails when crises shift the underlying distributions of shocks. Specifically, the linchpin ‘law of iterated expectations’ fails, so economic analyses involving conditional expectations and inter-temporal derivations also fail. Like a fire station that automatically burns down whenever a big fire starts, DSGEs become unreliable when they are most needed.


Solving and Estimating Indeterminate DSGE Models (UCLA-IMF) 
Wed, 2014-09-24 15:45

author Author(s): Roger E.A. Farmer, Giovanni Nicolò, Vadim Khramov
date Date: August 26, 2014
Reply to Hendry and Mizon: we have DSGE models with time-varying parameters and variances by Tony Yates
Wed, 2014-09-24 19:28

"The failure of our pre-crisis DSGE models doesn’t necessarily indicate we need time-varying ones, just models that generate low probability extreme outcomes (like a crash). "


Developing a Narrative: The Great Recession and Its Aftermath by Andrea Tambalotti, Argia Sbordone
Wed, 2014-09-24 20:16

Faust, Keynes and the DSGE Approach to Macroeconomics by Roger Farmer
Wed, 2014-09-24 23:08

Farmer in defense of the DSGE model.



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