The Fundamental Theorems of Welfare Economics, DSGE and the Theory of Policy - Computable & Constructive Foundations

K. Vela Velupillai

No 1125, ASSRU Discussion Papers from ASSRU - Algorithmic Social Science Research Unit

Abstract: The genesis and the path towards what has come to be called the DSGE model is traced, from its origins in the Arrow-Debreu General Equilibrium model (ADGE), via Scarf's Computable General Equilibrium model (CGE) and its applied version as Applied Computable General Equilibrium model (ACGE), to its ostensible dynamization as a Recursive Competitive Equilibrium (RCE). It is shown that these transformations of the ADGE - including the fountainhead - are computably and constructively untenable. The policy implications of these (negative) results, via the Fundamental Theorems of Welfare Economics in particular, and against the backdrop of the mathematical theory of economic policy in general, are also discussed (again from computable and constructive points of view). Suggestions for going 'beyond DSGE' are, then, outlined on the basis of a framework that is underpinned - from the outset - by computability and constructivity considerations

Keywords: Computable General Equilibrium; Dynamic Stochastic General Equilibrium; Computability; Constructivity; Fundamental Theorems of Welfare Economics; Theory of Policy; Coupled Nonlinear Dynamic (search for similar items in EconPapers)
JEL-codes: C02 C62 C68 D58 E61 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-dge, nep-hme and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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