Hendry, F. D., Mizon, E. G. (2014) “Why DSGEs crash during crises“, VoxEU Organisation, 18 Ιουνίου.
Many central banks rely on dynamic stochastic general equilibrium models – known as DSGEs to cognoscenti. This column – which is more technical than most Vox columns – argues that the models’ mathematical basis fails when crises shift the underlying distributions of shocks. Specifically, the linchpin ‘law of iterated expectations’ fails, so economic analyses involving conditional expectations and inter-temporal derivations also fail. Like a fire station that automatically burns down whenever a big fire starts, DSGEs become unreliable when they are most needed.
Σχετικές αναρτήσεις:
- Orphanides, A. (2014) “The Euro Area Crisis: Politics Over Economics“, MIT Sloan Research Paper No. 5091-14, 10 Iουνίου.
- Hahn, J. (2014) “Public investment under the new EU Cohesion Policy is helping Europe out of the crisis and into growth“, LSE EUROPP, 27 Μαΐου.
- Wren-Lewis, S. (2014) “Central bank advice on austerity“, Mainly Macro Blog, 05 Μαΐου.