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The Fundamental Theorems of Welfare Economics, DSGE and the Theory of Policy - Computable & Constructive Foundations

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  • K. Vela Velupillai
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    Abstract

    The genesis and the path towards what has come to be called the DSGE model is traced, from its origins in the Arrow-Debreu General Equilibrium model (ADGE), via Scarf's Computable General Equilibrium model (CGE) and its applied version as Applied Computable General Equilibrium model (ACGE), to its ostensible dynamization as a Recursive Competitive Equilibrium (RCE). It is shown that these transformations of the ADGE - including the fountainhead - are computably and constructively untenable. The policy implications of these (negative) results, via the Fundamental Theorems of Welfare Economics in particular, and against the backdrop of the mathematical theory of economic policy in general, are also discussed (again from computable and constructive points of view). Suggestions for going 'beyond DSGE' are, then, outlined on the basis of a framework that is underpinned - from the outset - by computability and constructivity considerations

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    Bibliographic Info

    Paper provided by ASSRU - Algorithmic Social Science Research Unit in its series ASSRU Discussion Papers with number 1125.

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    Date of creation: 2011
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    Handle: RePEc:trn:utwpas:1125

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    Keywords: Computable General Equilibrium; Dynamic Stochastic General Equilibrium; Computability; Constructivity; Fundamental Theorems of Welfare Economics; Theory of Policy; Coupled Nonlinear Dynamic;

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    1. Itzhak Gilboa, 2010. "Rational Choice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262014009, December.
    2. K. Vela Velupillai, 2005. "The foundations of computable general equilibrium theory," Department of Economics Working Papers 0513, Department of Economics, University of Trento, Italia.
    3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867, April.
    4. K. Vela Velupillai, 2011. "Freedom, Anarchy and Conformism in Academic Research," ASSRU Discussion Papers 1123, ASSRU - Algorithmic Social Science Research Unit.
    5. Herbert E. Scarf, 1977. "The Computation of Equilibrium Prices: An Exposition," Cowles Foundation Discussion Papers 473, Cowles Foundation for Research in Economics, Yale University.
    6. K. (Vela) Velupillai, . "Computability and Complexity in Games," Working Papers _010, University of California at Los Angeles, Center for Computable Economics.
    7. K. Vela Velupillai, 2011. "Towards an Algorithmic Revolution in Economic Theory," ASSRU Discussion Papers 1105, ASSRU - Algorithmic Social Science Research Unit.
    8. Takashi Negishi, 2008. "Unnoticed predecessors of the early Negishi theorems," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 167-173.
    9. K. Vela Velupillai, 2008. "Uncomputability and Undecidability in Economic Theory," Department of Economics Working Papers 0806, Department of Economics, University of Trento, Italia.
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