Replication data for: On DSGE Models

Summary:  View help for Summary The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policymakers is how to assess the relative strength of those forces. Economists have a range of tools that can be used to make such assessments. Dynamic stochastic general equilibrium (DSGE) models are the leading tool for making such assessments in an open and transparent manner. We review the state of mainstream DSGE models before the financial crisis and the Great Recession. We then describe how DSGE models are estimated and evaluated. We address the question of why DSGE modelers—like most other economists and policymakers—failed to predict the financial crisis and the Great Recession, and how DSGE modelers responded to the financial crisis and its aftermath. We discuss how current DSGE models are actually used by policymakers. We then provide a brief response to some criticisms of DSGE models, with special emphasis on criticism by Joseph Stiglitz, and offer some concluding remarks.

JEL Classification:  View help for JEL Classification
      E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
      E13 General Aggregative Models: Neoclassical
      E32 Business Fluctuations; Cycles
      E44 Financial Markets and the Macroeconomy
      E52 Monetary Policy
      E62 Fiscal Policy
      G01 Financial Crises