IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2607.03144.html

DSGE as a Structured World Model:Benchmarking Counterfactual Generalization in Economic Worlds

Author

Listed:
  • Wenli Xu

Abstract

Modern world models -- Dreamer, transformer world models (IRIS, Genie), and JEPA / next-latent architectures -- learn dynamics from observed trajectories but share a weakness: their transition map is disciplined only where data were seen, so it degrades under policy-induced distribution shift and on counterfactual states off the training path. We argue that a Dynamic Stochastic General Equilibrium (DSGE) model is a structured world model: its state is a belief state -- the very object a latent world model learns, but supplied with causal structure and hard cross-equation constraints. We introduce DSGE-Gym, a benchmark of eight DSGE environments with off-path counterfactual test sets, scaling to the ECB's 230-variable New Area-Wide Model. We find that (i)learned world models match the dynamics on-path but collapse off-path (5{\sigma} tail RMSE up to \sim 40 the on-path level), and (ii)training the same architectures on data the DSGE generates across rare and counterfactual-policy states -- coverage only a structural model can synthesize -- roughly halves tail error and cuts policy-regime error 10--280 where the counterfactual rule shifts the ergodic support. Because such coverage cannot be sampled from any single history, this measures structure's ability to manufacture the missing distribution. DSGE-Gym and all code are released as a reproducible testbed for counterfactual generalization.

Suggested Citation

  • Wenli Xu, 2026. "DSGE as a Structured World Model:Benchmarking Counterfactual Generalization in Economic Worlds," Papers 2607.03144, arXiv.org.
  • Handle: RePEc:arx:papers:2607.03144
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2607.03144
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marlon Azinovic & Jan v{Z}emliv{c}ka, 2023. "Economics-Inspired Neural Networks with Stabilizing Homotopies," Papers 2303.14802, arXiv.org.
    2. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    3. Simon Scheidegger & Andreas Schaab, 2026. "Equilibrium World Models," Papers 2606.23463, arXiv.org.
    4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    5. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2018. "Monetary Policy According to HANK," American Economic Review, American Economic Association, vol. 108(3), pages 697-743, March.
    6. Maliar, Lilia & Maliar, Serguei & Winant, Pablo, 2021. "Deep learning for solving dynamic economic models," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 76-101.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ciccarelli, Matteo & Darracq Pariès, Matthieu & Priftis, Romanos & Angelini, Elena & Bańbura, Marta & Bokan, Nikola & Fagan, Gabriel & Gumiel, José Emilio & Kornprobst, Antoine & Lalik, Magdalena & Mo, 2024. "ECB macroeconometric models for forecasting and policy analysis," Occasional Paper Series 344, European Central Bank.
    2. Zhouzhou Gu & Mathieu Lauri`ere & Sebastian Merkel & Jonathan Payne, 2024. "Global Solutions to Master Equations for Continuous Time Heterogeneous Agent Macroeconomic Models," Papers 2406.13726, arXiv.org.
    3. Bernardino Adão & Sandra Gomes & Laura Alpizar, 2025. "On how to assess the impact of monetary policy," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. Paccagnini, Alessia, 2017. "Dealing with Misspecification in DSGE Models: A Survey," MPRA Paper 82914, University Library of Munich, Germany.
    5. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2018. "On DSGE Models," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 113-140, Summer.
    6. Solis-Garcia, Mario, 2017. "Yes we can! Teaching DSGE models to undergraduate students," MPRA Paper 81754, University Library of Munich, Germany.
    7. Böhl, Gregor & Strobel, Felix, 2020. "US business cycle dynamics at the zero lower bound," IMFS Working Paper Series 143, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    8. Giovanni Dosi & Andrea Roventini, 2019. "More is different ... and complex! the case for agent-based macroeconomics," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 1-37, March.
    9. Kshama Dwarakanath & Tucker Balch & Svitlana Vyetrenko, 2024. "ABIDES-Economist: Agent-Based Simulator of Economic Systems with Learning Agents," Papers 2402.09563, arXiv.org, revised Aug 2025.
    10. Adem Feto & M. K. Jayamohan & Arnis Vilks, 2023. "Applicability and Accomplishments of DSGE Modeling: A Critical Review," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(2), pages 213-239, September.
    11. Boehl, Gregor, 2025. "HANK on speed: Robust nonlinear solutions using automatic differentiation," Journal of Economic Theory, Elsevier, vol. 230(C).
    12. Gauti B. Eggertsson & Sergei K. Egiev, 2025. "Liquidity Traps: A Unified Theory of the Great Depression and the Great Recession," Journal of Economic Literature, American Economic Association, vol. 63(4), pages 1424-1551, December.
    13. Patrick J. Kehoe & Virgiliu Midrigan & Elena Pastorino, 2018. "Evolution of Modern Business Cycle Models: Accounting for the Great Recession," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 141-166, Summer.
    14. Edward Hill & Marco Bardoscia & Arthur Turrell, 2021. "Solving Heterogeneous General Equilibrium Economic Models with Deep Reinforcement Learning," Papers 2103.16977, arXiv.org.
    15. Xianhua Peng & Steven Kou & Lekang Zhang, 2024. "A Machine Learning Algorithm for Finite-Horizon Stochastic Control Problems in Economics," Papers 2411.08668, arXiv.org, revised Dec 2024.
    16. Faust, Jon & Gupta, Abhishek, 2010. "Posterior Predictive Analysis for Evaluating DSGE Models," MPRA Paper 26721, University Library of Munich, Germany.
    17. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    18. Albonico, Alice & Tirelli, Patrizio, 2020. "Financial crises and sudden stops: Was the European monetary union crisis different?," Economic Modelling, Elsevier, vol. 93(C), pages 13-26.
    19. Chan, Ying Tung & Zhao, Hong, 2023. "Optimal carbon tax rates in a dynamic stochastic general equilibrium model with a supply chain," Economic Modelling, Elsevier, vol. 119(C).
    20. Ma Eunseong & Park Kwangyong, 2025. "Gini in the Taylor Rule: Should the Fed Care About Inequality?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(1), pages 241-285.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:arx:papers:2607.03144. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.