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Does evidence challenge the DSGE model

Tanya Araújo (), Sofia Terlica, Samuel Eleuterio and Francisco Louçã ()
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Sofia Terlica: Banco de Portugal
Samuel Eleuterio: Instituto Superior Técnico, University of Lisbon Av. Rovisco Pais 1049-001 Lisboa, Portugal

International Journal of Entrepreneurial Knowledge, 2014, vol. 2, issue 2, 15-24

Abstract: DSGE are for a time the favorite models in the simulation of monetary policies at the central banks. Two of its basic assumptions are discussed in this paper: (a) the absence of endogenous nonlinearities and the exogenous nature of shocks and (b) the persistence of or the return to equilibrium after a shock, or the absence of dynamics. Our analysis of complex financial markets, using historical data of S&P500, suggests otherwise that financial regimes endogenously change and that equilibrium is an artifact.

Keywords: Market Crises; Stochastic Geometry; Efficient Market Hypothesis; General Equilibrium; Financial Markets (search for similar items in EconPapers)
JEL-codes: C19 C49 C69 (search for similar items in EconPapers)
Date: 2014
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