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DSGE Models: I Smell a Rat (and It Smells Good)

  • Jon Faust

    (Johns Hopkins University and NBER)

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    DSGE models have now reached a point where they can and do serve an important role in the monetary policy process. From the standpoint of real-world policymaking, however, there remain important areas of omission and coarse approximation in these models. I argue that macroeconomics should follow other fields such as toxicology in having a formal literature on how best to use models that are far from perfect as a basis for public policy.

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    Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

    Volume (Year): 8 (2012)
    Issue (Month): 1 (March)
    Pages: 53-64

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    Handle: RePEc:ijc:ijcjou:y:2012:q:1:a:3
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    1. Hansen, Bruce E., 2005. "Challenges For Econometric Model Selection," Econometric Theory, Cambridge University Press, vol. 21(01), pages 60-68, February.
    2. Faust, Jon & Gupta, Abhishek, 2010. "Posterior Predictive Analysis for Evaluating DSGE Models," MPRA Paper 26721, University Library of Munich, Germany.
    3. Gupta, Abhishek, 2010. "A Forecasting Metric for Evaluating DSGE Models for Policy Analysis," MPRA Paper 26718, University Library of Munich, Germany.
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