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Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"

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  • Muriel Dal-Pont Legrand

    (Université Côte d'Azur, France
    GREDEG CNRS)

  • Harald Hagemann

    (University of Hohenheim, Stuttgart)

Abstract

It is tempting to understand the DSGE (Dynamic Stochastic General Equilibrium) approach as a refinement of earlier contributions, namely Slutsky (1927) and Frisch (1933), and to a lesser extent Hayek, Hicks, and Lutz. By analyzing the debates in these periods, we try to show that the modern tools from which our theories benefit, far from being neutral, have deeply changed the nature of business cycles theories. We identify the reduced role of propagation mechanisms in DSGE models and their consequences for current debates. The overemphasis on the capacity of models to mimic cyclical fluctuations on the one side, and the clear incapacity of these models to explain (even to mimic) large scale crises on the other, are distinct but convergent elements which reveal a deep change in the relationship between the empirical findings (data, stylized facts) and the theory. These elements are deserving more attention from historians of economic thought.

Suggested Citation

  • Muriel Dal-Pont Legrand & Harald Hagemann, 2019. "Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus"," GREDEG Working Papers 2019-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
  • Handle: RePEc:gre:wpaper:2019-01
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    References listed on IDEAS

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    Cited by:

    1. Romain Plassard, 2019. "From Disequilibrium to Equilibrium Macroeconomics: Barro and Grossman's Trade-off between Rigor and Realism," GREDEG Working Papers 2019-17, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    2. Nicolas Brisset & Dorian Jullien, 2019. "Models as Speech Acts: A Restatement and a new Case Study," GREDEG Working Papers 2019-09, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. Alain Raybaut, 2019. "A First French Episode in the Renewal of Nonlinear Theory of Economic Cycles (1978-1985)," GREDEG Working Papers 2019-07, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    4. Charlie Joyez, 2019. "Shared Ownership in the International Make or Buy Dilemma," GREDEG Working Papers 2019-04, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    5. Richard Arena & Ludovic Ragni, 2019. "Nature humaine et choix rationnel : Pareto contre Walras ?," GREDEG Working Papers 2019-06, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    6. Claire Baldin & Ludovic Ragni, 2019. "La conception de l'homme dans la théorie de l'Echange Composite de François Perroux : entre homo economicus vs homo religiosus," Post-Print halshs-02389031, HAL.

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