Adding a D, S, GE and RE to your model instead of usual X, Y and Z..

Superb cartoon by Prof. Anton Korinek of John Hopkins and a detailed post on the dreaded DSGE models.

This essay critically evaluates the benefits and costs of the dominant methodology in macroeconomics, the DSGE approach. Although the approach has led to great progress in some areas, it has also created biases and blind spots in the profession that hold back our understanding and our ability to govern the macroeconomy. There is great scope for progress in macroeconomics by judiciously pushing the boundaries of some of the methodological restrictions imposed by the DSGE approach.

 

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