IDEAS home Printed from https://ideas.repec.org/a/jek/journl/v2y2014i2p15-24.html
   My bibliography  Save this article

Does evidence challenge the DSGE model

Author

Listed:
  • Tanya ARAUJO

    (ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal)

  • Sofia TERLICA

    (Banco de Portugal)

  • Samuel ELEUTERIO

    (Instituto Superior Técnico, University of Lisbon Av. Rovisco Pais 1049-001 Lisboa, Portugal)

  • Francisco LOUCA

    () (ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal)

Abstract

DSGE are for a time the favorite models in the simulation of monetary policies at the central banks. Two of its basic assumptions are discussed in this paper: (a) the absence of endogenous nonlinearities and the exogenous nature of shocks and (b) the persistence of or the return to equilibrium after a shock, or the absence of dynamics. Our analysis of complex financial markets, using historical data of S&P500, suggests otherwise that financial regimes endogenously change and that equilibrium is an artifact.

Suggested Citation

  • Tanya ARAUJO & Sofia TERLICA & Samuel ELEUTERIO & Francisco LOUCA, 2014. "Does evidence challenge the DSGE model," International Journal of Entrepreneurial Knowledge, VSP Ostrava, a. s., vol. 2(2), pages 15-24, December.
  • Handle: RePEc:jek:journl:v:2:y:2014:i:2:p:15-24
    as

    Download full text from publisher

    File URL: http://ijek.org/files/IJEK_2-2014v2/ijek_2-2014,v.2_araujo,t.terlica,s.eleuterio,s.louca,f..pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Dirk J. Bezemer, 2011. "Causes of Financial Instability: Don’t Forget Finance," Economics Working Paper Archive wp_665, Levy Economics Institute.
    2. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters,in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Jesús Crespo Cuaresma & Ernest Gnan, 2008. "Four Monetary Policy Strategies in Comparison: How to Deal with Financial Instability?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 65-102.
    5. Challe, Edouard & Giannitsarou, Chryssi, 2014. "Stock prices and monetary policy shocks: A general equilibrium approach," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 46-66.
    6. Michael D. Bordo & Michael J. Dueker & David C. Wheelock, 2008. "Inflation, Monetary Policy and Stock Market Conditions," NBER Working Papers 14019, National Bureau of Economic Research, Inc.
    7. Ansgar Belke & Jens Klose, 2010. "(How) Do the ECB and the Fed React to Financial Market Uncertainty?: The Taylor Rule in Times of Crisis," Discussion Papers of DIW Berlin 972, DIW Berlin, German Institute for Economic Research.
    8. Antulio N. Bomfim, 2001. "Measuring equilibrium real interest rates: what can we learn from yields on indexed bonds?," Finance and Economics Discussion Series 2001-53, Board of Governors of the Federal Reserve System (U.S.).
    9. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters,in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
    10. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    11. repec:zbw:rwirep:0166 is not listed on IDEAS
    12. Milani, Fabio, 2011. "The impact of foreign stock markets on macroeconomic dynamics in open economies: A structural estimation," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 111-129, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Market Crises; Stochastic Geometry; Efficient Market Hypothesis; General Equilibrium; Financial Markets;

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jek:journl:v:2:y:2014:i:2:p:15-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aleksandr Kljucnikov). General contact details of provider: http://edirc.repec.org/data/vsposcz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.