DSGE Models: I Smell a Rat (and It Smells Good)
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.
References listed on IDEAS
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- Hansen, Bruce E., 2005. "Challenges For Econometric Model Selection," Econometric Theory, Cambridge University Press, vol. 21(01), pages 60-68, February.
- Faust, Jon & Gupta, Abhishek, 2010.
"Posterior Predictive Analysis for Evaluating DSGE Models,"
26721, University Library of Munich, Germany.
- Jon Faust & Abhishek Gupta, 2012. "Posterior Predictive Analysis for Evaluating DSGE Models," NBER Working Papers 17906, National Bureau of Economic Research, Inc.
- 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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