tag:blogger.com,1999:blog-2546602206734889307.post4387798535132251142..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Are DSGE models distorting policy? - a test caseMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-2546602206734889307.post-69402672167564901442014-10-20T11:09:47.947+00:002014-10-20T11:09:47.947+00:00I have to say, Simon, this "defence" of ...I have to say, Simon, this "defence" of DSGE is a disturbing one. You describe them as "models still in an early development stage" - but they've been the subject of large scale and intensive effort for over 30 years now. And yet they still have failed to take on board such an obvious point that any idiot in the street could tell you - that the welfare losses from involuntary unemployment typically dwarf the welfare losses from inflation rather than the reverse. And note this is something that the current scramble to try and capture financial "frictions" does not address at all. How can you possibly, then, describe DSGE as "a progressive research strategy"?<br /><br />Of course David Sweet is right - the failure to tackle this is a sociological more than a methodological problem. A blind spot as large as this one could only ever persist because it is in the interest of certain classes that it persist, as an old bearded economist once tried to explain. Perhaps we should try reading him more than Lucas or Prescott.derrida deridernoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-28109120501728904692014-10-15T23:31:35.009+00:002014-10-15T23:31:35.009+00:00Simon says:
"So the DSGE models appear to be...Simon says:<br /><br />"So the DSGE models appear to be dead wrong [...]"<br /><br />(in respect of their assessment of the costs of unemployment). I agree.<br /><br />But then he goes on to say:<br /><br />"Does that mean that the DSGE models are deeply flawed? No, it means they are much too simple."<br /><br />I think there's a problem here. DSGE models are already quite complex, mathematically and computationally. If they would have to be made orders-of-magnitude more complicated to even register the existence of involuntary unemployment, this strongly suggests that they are the wrong tool for the job (of short- to medium-run macroeconomics). Particularly when much simpler models of the Keynes/Meade/Hicks type already do a creditable job.<br /><br />What sort of marginal benefit might we expect from greatly more complex DSGE models -- assuming they could ever handle unemployment properly? Greater quantitative precision, e.g. in terms of exactly when and by how much monetary or fiscal policy should relax or tighten? That would be nice to have, but I find it very implausible. If that's what Simon has in mind, I'd suggest that he owes us some sort of "proof of concept". <br />Allin Cottrellhttps://www.blogger.com/profile/13841039670160678066noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-65795083136649890212014-10-13T08:03:51.823+00:002014-10-13T08:03:51.823+00:00I don’t know much about DGSE, but it strikes me th...I don’t know much about DGSE, but it strikes me the crisis didn’t have much to with the strengths or weaknesses of DGSE: the crises was essentially a failure of the banking industry. Or to be more exact, we had a “Minsky moment”.<br /><br />In short, make banks more stable, and that basically solves the problem, unless I’ve missed something.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67241103281719688012014-10-12T19:28:59.525+00:002014-10-12T19:28:59.525+00:00Keynes' notion of involuntary unemployment has...Keynes' notion of involuntary unemployment has been forgotten. Neo-Keynesians like Leijonhufvud or the rationing school (Malinvaud et al) made frequently use of it. it was even estimated by econometricians. It seem to be forgotten. Alzheimer or ideology?Arminiushttp://googlenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-52867052741717242142014-10-12T18:12:20.135+00:002014-10-12T18:12:20.135+00:00I'm not surprised that economists (almost cert...I'm not surprised that economists (almost certainly never made involuntarily unemployed for any length of time) choose to ascribe unemployment to a preference for leisure over work. These are the same people who can explain wage differentials by asserting that some people want to be highly paid and others prefer to relax. In both cases there are no doubt individuals that fit these descriptions but I have never seen a convincing explanation why a recession leads so many to change their preferences at once.<br /><br />What you have to remember is that the most important task for an economist who wants to be listened to (and this goes for any kind of consultant) is to be aware of what the client wants to say, and to say it in a way that the client couldn't work out for himself. So micro-foundations, DSGE, multiple differential equations are techniques for wrapping up the present, in the form of advice to keep inflation low, the currency high and make sure that the truly deserving - the people who pay you - get the most goodies.<br /><br />Seriously, microfoundations weren't invented when I studied economics, and the idea of maintaining internal consistency, when I discovered it, seemed great. But if the cost is to cling on to 19th century (or earlier) ideas of utility maximisation in the teeth of (or rather in chosen) ignorance of how people really behave then their use is not only wrong but, to the extent that they do influence people and justify selfish behaviour by those who have power, morally corrupt.DavidShttps://www.blogger.com/profile/11679346381085854499noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-77135542798556925652014-10-12T16:40:20.113+00:002014-10-12T16:40:20.113+00:00So, if current journals don't accept ad-hoc mo...So, if current journals don't accept ad-hoc models, why not start one that does? (Genuine question - I can see that it might be a better strategy, for example, to first try persuading existing high impact journals to do so.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59434039415323140812014-10-12T00:49:07.296+00:002014-10-12T00:49:07.296+00:00Has a DSGE model been used to model a Fed policy o...Has a DSGE model been used to model a Fed policy of maintaining steady growth in NGDP?Thaomashttps://www.blogger.com/profile/14747215297590200584noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73262157643478176162014-10-11T16:19:00.915+00:002014-10-11T16:19:00.915+00:00How reliable are unemployment numbers? Maybe start...How reliable are unemployment numbers? Maybe start with measuring unemployment and the size of the black economy for all countries using the same definitions, before comparing unemployment numbers. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-41541483552893129112014-10-11T13:02:45.613+00:002014-10-11T13:02:45.613+00:00Isn't the problem that policy is guided by New...Isn't the problem that policy is guided by New Keynesian DSGE ? The Old Keynesian DSGE models of Roger Farmer would be a better vehicle for policy issues<br /><br />Uncle CharlieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63147195079793956802014-10-11T10:10:58.234+00:002014-10-11T10:10:58.234+00:00Question: Which policy question can be answered by...Question: Which policy question can be answered by DSGE which can't be handled with a dynamic version of IS-LM?Arminiushttp://googlenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67918677802262714232014-10-10T18:07:51.417+00:002014-10-10T18:07:51.417+00:00This is where the ubiquitousness of economists com...This is where the ubiquitousness of economists comes into play. Economists are not only scientists, but also political counsellors and frequently lobbyists. DSGE has its place in scientific research, but for now, it does not necessarily lead to better policy choices, though some economists, for ideological or personal reasons, say they do.Alexander Sebastian Schulzhttps://www.blogger.com/profile/15135338616598357444noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60642712519461083222014-10-10T15:17:34.668+00:002014-10-10T15:17:34.668+00:00WRT your footnote, a few elderly academics that ar...WRT your footnote, a few elderly academics that are not familiar with computational methods and econometrics, and are not open to anything other than rational expectations, are regarded by younger academics as past their sell-by date. Those who criticize others for not being up on the latest research should first familiarize themselves with post-1990 methodologies.Anonymousnoreply@blogger.com