"A new project in the D[namic] S[tochastic] G[eneral] E[quilibrium] framework will typically, as Blanchard indicates, begin with the standard general equilibrium model, disregarding the modifications made to that model in previous work examining the other ways in which the real economy deviated from the modeled ideal.I was inspired by this Crooked Timber thread to post this.
By contrast, a scientifically progressive program would require a cumulative approach, in which empirically valid adjustments to the optimal general equilibrium framework were incorporated into the standard model taken as the starting point for research. Such an approach would imply the development of a model that moved steadily further and further away from the standard general equilibrium framework, and therefore became less and less amenable to the standard techniques of analysis associated with that model." -- John Quiggin, Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton University Press, 2010)
2 years ago