On DSGE Models
By L. Christiano, Martin Eichenbaum, Mathias Trabandt. Journal of Economic Perspectives, 2018
244 citations recorded by the source corpus.
The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policymakers is how to assess the relative strength of those forces. Economists have a range of tools that can be used to make such assessments. Dynamic stochastic general equilibrium (DSGE) models are the leading tool for making such assessments in an open and transparent manner. We review the state of mainstream DSGE models before the financial crisis and the Great Recession. We then describe how DSGE models are estimated and evaluated. We address the question of why DSGE modelers—like most other economists and policymakers—failed to predict the financial crisis and the Great Recession, and how DSGE modelers responded to the financial crisis and its aftermath. We discuss how current DSGE models are actually used by policymakers. We then provide a brief response to some criticisms of DSGE models, with special emphasis on criticism by Joseph Stiglitz, and offer some concluding remarks.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/d9908629b1204a829ba3ac7fa653faee99720da3
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Fotios Petropoulos
- Konstantinos Nikolopoulos
- Rob J Hyndman
- Nikolaos Kourentzes
- Vassilios Assimakopoulos
- Evangelos Spiliotis
- Spyros Makridakis
- Christoph Bergmeir
Citations in the corpus
- Forecasting: theory and practice (2020, methodology): “Dynamic Stochastic General Equilibrium (DSGE) models are the workhorse of modern macroeconomics in both academia and policy-making institutions (for details, see: Paccagnini, 2017; Christiano et al., 2018).”
- Behavioral & Experimental Macroeconomics and Policy Analysis: A Complex Systems Approach (2018, background): “in Cúrdia & Woodford (2010, 2016), Gertler & Karadi (2011, 2013), Christiano et al. (2010) and Gilchrist et al.”
- Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies (2019, methodology): “we consider a medium-scale DSGE model à la Smets and Wouters (2007), as it has been successful in providing an empirically plausible account of key macroeconomic variables (see also Christiano et al., 2017, for a discussion on the importance of DSGE models in the policy process). We deliberately cho”
- Economic Forecasting with an Agent-Based Model (2020, methodology): “3 HANK models have been used to show that household and firm heterogeneity affect macroeconomic aggregates, but have rarely been used to forecast economic aggregates, where representative agent New Keynesian (RANK) models have remained the benchmark (Kaplan and Violante, 2018; Christiano et al., 201”