Dynamic stochastic general equilibrium


A recent video from Real Progressives, RealProgressives LIVE w/ Ellis Winningham – The Federal Jobs Guarantee, cast aspersions on DSGE.


I decided to look up the topic that went with the acronym which landed me at this Wikipedia article Dynamic stochastic general equilibrium. I think the criticism made in the video is the one mentioned in this excerpt from the Wikipedia article.

Robert Solow blasted DSGE models currently in use:

‘I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying out a rationally designed, long-term plan, occasionally disturbed by unexpected shocks, but adapting to them in a rational, consistent way… The protagonists of this idea make a claim to respectability by asserting that it is founded on what we know about microeconomic behavior, but I think that this claim is generally phony. The advocates no doubt believe what they say, but they seem to have stopped sniffing or to have lost their sense of smell altogether

Even after reading this article, I still don’t know enough yet to form a judgment. This post is the beginning of my education on this subject. I am sure more will follow.

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