Do DSGE Models Have a Future?

Olivier Blanchard

No PB16-11, Policy Briefs from Peterson Institute for International Economics

Abstract: Dynamic stochastic general equilibrium (DSGE) models have come to play a dominant role in macroeconomic research. Some see them as the sign that macroeconomics has become a mature science, organized around a microfounded common core. Others see them as a dangerous dead end. This Policy Brief argues that the current DSGE models are seriously flawed, but they are eminently improvable and central to the future of macroeconomics. To improve, however, they have to become less insular, by drawing on a much broader body of economic research. They also have to become less imperialistic and accept to share the scene with other types of general equilibrium models.

Date: 2016-08
New Economics Papers: this item is included in nep-dge and nep-hpe
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