How Non To Defend Dsge Macro

I used to live quite animated inwards my dislike for Dynamic Stochastic General Equilibrium (DSGE) models, but my mental attitude has shifted: I take away keep declared victory as well as gone home. At present, I alone take away keep a somewhat disinterested academic pursuit on i topic: are DSGE models truly mathematical models? Whether or non that is the instance does non truly comport upon the enquiry of whether they are useful. The recent endeavour at a defence past times Christiano, Eichenbaum, as well as Trabandt confirmed my attitude; it was such a spectacular intellectual failure that it is non worth taking seriously.

Noah Smith has done an impressive smackdown on the newspaper on his website here. Noah Smith is in all probability i of the most sympathetic backers of mainstream macro exterior of academia, as well as fifty-fifty he idea this endeavour at defending DSGE macro was ridiculous (the "cackling cartoon villain" defence forcefulness of DSGE).

If nosotros rephrased the arguments of Christiano, Eichenbaum, as well as Trabandt, they are perchance reasonable. One could combat that nosotros bespeak to purpose a modelling strategy similar to the i used past times DSGE modellers to trouble organization human relationship for:

1.  a shifting policy environment; 
2. and to take away keep into trouble organization human relationship macro relationships betwixt all variables.

The origin indicate is a lot to a greater extent than straightforward than economical arguments would suggest. For example, nosotros cannot blindly rely on closed to regression model that is tally to information inwards i economical regime, as well as thus extrapolate those results to a novel institutional environment. Although this was allegedly the big insight of the forefathers of DSGE macro, it is an obvious indicate that I believe that most Keynesian economists were aware of. Keynes was non just a cheerleader for the early on econometric work.

The mo indicate -- that nosotros bespeak to take away keep into trouble organization human relationship all macro relationships, as well as non argue from a partial analysis -- is the defining feature of macroeconomics. Keynes' give-and-take of effects such every bit the fallacy of composition are what drove the creation of a sub-discipline of macroeconomics inwards the origin place.

Although those are reasonable points, it does non hateful that DSGE macro truly fulfils those objectives. (One could easily enhance doubts almost other methodologies, including my preferred stock-flow consistent models.) I cannot promise to settle debates on those lines here.

However, the newspaper by Christiano, Eichenbaum, as well as Trabandt went completely off the rails when compared to that reasonable delineate of argument. In the abstract, nosotros read:

One strategy is to perform experiments on actual economies. Unfortunately, this strategy is non available to social scientists. The only  [emphasis inwards master - BR] identify that nosotros tin create experiments is inwards dynamic stochastic full general equilibrium (DSGE) models.

They literally combat that no other economical modelling methodology fifty-fifty exists.

I would depository fiscal establishment notation that other DSGE researchers were somewhat horrified past times the abstract every bit well. However, it lastly explicitly raises a indicate that was ever implicit inwards the DSGE literature: create they acknowledge the beingness of other enquiry programmes? In practice, the response was they did non create so, which is just what the abstract suggests they should do.

As an outsider, i tin alone revise downwardly one's sentiment of the academic standards of mainstream economists. We take away keep an intellectual debate inwards which i side refuses to acknowledge the beingness of the debate inwards the origin place. I am non an skillful on the scientific method, but it seems to me that is non how it is supposed to work.

(c) Brian Romanchuk 2017