Why Do We Need to Replace DSGE Models?

Marc, Pilkington

LIMESplus

3

79

94

1820-0869

https://www.ceeol.com/search/article-detail?id=477020

2014-2021/10/18/12:11:40

Summary/Abstract: In this paper, we critically address pre-crisis central banking doctrine from a methodological standpoint. We argue that the underpinnings of the reigning paradigm before the crisis account for its paradigmatic failure both to predict the global crisis, and be a reliable source of inspiration for post-crisis policies. We insist on DSGE models, and emphasize the need for enhanced understanding of macro-financial interactions. In a second part, we sketch out three research directions aimed at overcoming the shortcomings of pre-crisis models. We respectively consider the merits of ensemble modeling, Homo Socialis and agent-based modeling. Finally, we conclude.

alternative methodologies, DSGE models, financial crisis