Olivier J Blanchard, 2019. In the second case, it occurs by introducing backward-looking price indexation, which, nearly by assumption, generates inflation inertia. The following articles are merged in Scholar. This work is on-going and should indeed proceed on its own, without worrying about DSGE integration. I am not optimistic that DSGEs will be good policy models unless they become much looser about constraints from theory. 2. Or, perhaps more fairly, the profession (and again, this is a note to the editors of the major journals) must realize that different model types are needed for different tasks.The first is what the core model should be. Ironically, I find myself fairly close to my interpretation of Ed Prescott’s position on this issue, and his dislike of econometrics for those purposes. (ii) The only way in which DSGEs can play this role is if they are built on explicit micro foundations. To show how, and why, I have ended up where I am, I have kept the pieces in the order in which I wrote them, rather than reorganize them in a new, more integrated piece.First, I argued, it has to become less insular.I believe the first claim is exaggerated and the second is wrong. Do they add up to a case for discarding DSGEs and exploring other approaches? No model can be all things to all people.How close they remain formally to theory is not a relevant criterion here.
But, for the more casual reader, it is often extremely hard to understand what a particular distortion does on its own and then how it interacts with other distortions in the model.
We know, for example, that aggregation can make aggregate relations bear little resemblance to underlying individual behaviour.The purpose of these models is to help policy, to study the dynamic effects of specific shocks, to allow for the exploration of alternative policies. Old-fashioned policy models would benefit from the work about heterogeneity, liquidity constraints, embodied in some DSGEs. to look, for example, at the effects of changes in policy, more structural models are needed, but they must fit the data closely and do not need to be religious about micro foundations.Now take policy models. 109(4), pages 1197-1229, April. Some new-fashioned models start from a DSGE structure, and then let the data determine the richer dynamics. I said, at the time, that DSGE modelling needed to evolve in two ways.My first piece looked at the case for or against DSGE models. One type is not better than the others. It may well be that, for these purposes, reduced form models will continue to beat structural models for some time; theoretical purity may be for the moment more of a hindrance than a strength.If, however, one does accept them (even if reluctantly), then wholesale dismissal of DSGEs is not an option. Phone: (617) 253-8891. Fax: (617) 253-1330.
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