Friday, November 24, 2017

Grab a Barf Bag!


Here's a quote that would make Lars Syll retch:

Because DSGE models start from microeconomic principles of constrained decision-making, rather than relying on historical correlations, they are more difficult to solve and analyze. However, because they are also based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.

"... based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.

I think this is one of Syll's pet peeves! DSGE models are not "based on the preferences of" actual economic agents, but on simplified agents arising from "deductivist" assumptions. And, as Syll puts it:

When addressing real economies, the idealizations and abstractions necessary for the deductivist machinery to work simply don’t hold.

I like the MathWorks quote because it is a little bit of evidence that Syll is right. I have no idea who might be right about such things until I see a few bits of evidence like that.


I also like the MathWorks quote because it describes the alternative to DSGE models as "relying on historical correlations", which is the thing that makes sense to me.


// see also: Lucas critique?
// see also: Rethinking the same damn thought

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