tag:blogger.com,1999:blog-26706564.post3430745196281466043..comments2024-03-25T07:51:47.758-04:00Comments on Thoughts On Economics: A Slight Illness - The Doctor Jests, A King Today - Tomorrow He Is DeadRobert Vienneauhttp://www.blogger.com/profile/14748118392842775431noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-26706564.post-13479156938935886622010-11-14T07:25:19.078-05:002010-11-14T07:25:19.078-05:00I agree that "calibration" is a problem ...I agree that "calibration" is a problem with DSGE models.Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-6576069917616459682010-11-09T07:25:32.205-05:002010-11-09T07:25:32.205-05:00Great blog with lot of thought provoking entries!
...Great blog with lot of thought provoking entries!<br /><br />Actually,all problems you mentioned are present in the DSGE framework.<br /><br />However,there is another interesting "feature" of these models.When estimating a DSGE (or RBC,CGE) model,a lot of sophisticated econometric inference methods are used.But,in general,the parameters you get by these econometric methods are patently absurd.<br /><br />So,the model gets "calibrated",which means that you search for parameters that 1.are consistent with the equilibrium concept 2.meaningful in the sense that the system won't explode or households don't consume twice their wages in the steady state etc. 3.and you do this in a systemic manner (all equations should be meaningful,simultaneously - a feature that the econometric inference does NOT provide in most of the times) <br /><br />In short,in real life,on top the econometric inference,a lot of rule-of-thumb and (albeit intelligent) guesswork are embodied in a DSGE model.<br /><br />Godley and Lavoie in their book also mention this "calibration" issue.(In the foreword,if I'm not mistaken.) <br /><br />So I'd compare a real-life DSGE to a very high order polynom: you can fit it to every function (curve) in the world by calibrating its coefficients - but its performance out-of-the sample will be questionble the least. <br /><br />DanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-26706564.post-37133620889147751722010-11-09T01:58:24.515-05:002010-11-09T01:58:24.515-05:00You might find of interest David Hendy and Grayham...You might find of interest David Hendy and Grayham Mizon's paper <a href="http://econpapers.repec.org/paper/oxfwpaper/497.htm" rel="nofollow"><i>On the Mathematical Basis of Intertemporal Optimization</i></a>. It argues that the typical rational expectations approach is inappropriate when time series exhibit unanticipated breaks.Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-22876025808272396852010-11-07T12:45:58.921-05:002010-11-07T12:45:58.921-05:00There's another problem I've been wonderin...There's another problem <a href="http://slackwire.blogspot.com/2010/11/lucas-critique-critique.html" rel="nofollow">I've been wondering about</a>, which is how one can square agents optimizing across time with unanticipated shocks. Are rational expectations and comparative statics even logically compatible?JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-23773493975578103872010-11-06T21:29:11.486-04:002010-11-06T21:29:11.486-04:00I wouldn't mind if the systematic errors were ...I wouldn't mind if the systematic errors were persistent, well-known and ineradicable, so long as they were <i>small</i>. (I'm fine with mechanical engineers using classical mechanics and not quantum field theory.) But I don't think the DSGE-mongers have even this on their side.Cosma Shalizihttp://bactra.org/weblog/noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-38659343076981325152010-11-06T10:39:20.386-04:002010-11-06T10:39:20.386-04:00Thanks for the comments. I've updated the post...Thanks for the comments. I've updated the post with the link suggested by Tomboktu. I might not mind so many models known to be invalid if the invalidity was discovered just last year, say, and their retention was just a matter of inertia that one had some reason to believe would be overcome in maybe half a decade.Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-68673643584756195502010-11-06T08:13:23.899-04:002010-11-06T08:13:23.899-04:00The URL for Sbordone et al isn't working. I go...The URL for Sbordone et al isn't working. I got it here:<br /><br />http://www.ny.frb.org/research/epr/10v16n2/1010sbor.htmlTomboktuhttp://cedarlounge.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-32158920082561470442010-11-06T02:10:47.617-04:002010-11-06T02:10:47.617-04:00A broader range of models? Heck, I might go for an...A broader range of models? Heck, I might go for an equally narrow range of models, if the range consisted of not-known-invalid models as opposed to known-invalid models.BruceMcFhttps://www.blogger.com/profile/08502035881761277885noreply@blogger.com