Why DSGEs crash during crises

David F. Hendry, Grayham E. Mizon, 18 June 2014

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In most aspects of their lives humans must plan forwards. They take decisions today that affect their future in complex interactions with the decisions of others. When taking such decisions, the available information is only ever a subset of the universe of past and present information, as no individual or group of individuals can be aware of all the relevant information.

Topics: Macroeconomic policy
Tags: crises, DSGE, law of iterated expectations

Default and DSGE models

Charles A.E. Goodhart, Dimitri Tsomocos, 26 November 2009

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Martin Shubik described money as an “institutionalised symbol of trust”, and Nobu Kiyotaki and John Moore coined a nice phrase, “Evil is the root of all money”. And they are correct in this. If everyone always repaid all their debts with certainty, then there would be no need for money, most financial instruments, nor intermediaries like banks.

Topics: Frontiers of economic research
Tags: default, DSGE, transversality condition

Top-down versus bottom-up macroeconomics

Paul De Grauwe, 19 November 2009

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There is a general perception today that the financial crisis came about as a result of inefficiencies in the financial markets and economic actors’ poor understanding of the nature of risks.

Topics: Frontiers of economic research
Tags: animal spirits, behavioural, DSGE, macroeconomics

Economic theory and the crisis

Alan Kirman, 14 November 2009

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A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.
– Max Planck, A Scientific Autobiography (1949)

Topics: Frontiers of economic research
Tags: DSGE, efficient markets hypothesis, Homo economicus, representative agent

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