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The State of DSGE Modelling

Author

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  • Paul Levine

    (University of Surrey and CIMS)

Abstract

This survey and assessment of the state of DSGE modelling is structured around six key criticisms levelled at the approach. The first is fundamental and common to macroeconomics and microeconomics alike - namely, problems with rationality and Expected Utility Maximization (EUM). The second is that DSGE models examine fluctuations about an exogenous balanced growth path and there is no role for endogenous growth. The third consists of a number of concerns associated with estimation. The fourth is another fundamental problem with any micro-founded macro-model - that of heterogeneity and aggregation. The fifth and sixth concerns focus on the rudimentary nature of earlier models that lacked unemployment and a banking sector.

Suggested Citation

  • Paul Levine, 2019. "The State of DSGE Modelling," School of Economics Discussion Papers 0319, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0319
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    File URL: https://repec.som.surrey.ac.uk/2019/DP03-19.pdf
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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