[neffy]

The DSGE models are influential up until somebody comes up with a valid alternative, at which point they will be dropped at somewhat over the speed of light :)

To be brutally honest, this is not a big achievement. You should be able to rapidly speed up any matlab model by porting it into pretty much any other language due to well known issues with matlab. Being able to run DSGE models more quickly is important to economists because it allows them to be better 'callibrated' - which is to say that the economists essentially tweak the models for the country they are looking at, until they fit the known data over an acceptable time period. (They don't try to hide this btw. there are scores of papers on model calibration approaches.)

A good example of what this leads to is the one for Iceland:

http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=8077

Notice that this is published in 2010, but for some strange reason the charts (p57 onwards) all stop in 2005.

It's over fitting to the curve on computer assisted steroids.

[SolarNet]

Is there a reason calibration isn't automatic? Say with some sort of genetic algorithm?

Do the simulations take too long?

[neffy]

This is the critical thing - they're not simulations. They are mathematical models based on a mix of the existing economic macro-economic formula. With upwards of 200 parameters that can be tweaked. There is no particular recipe btw - if you start digging into the configuration files for these 'models', you'll find all sorts of things, with the occasional hilarious comment (my favourite -'this seems to work in Sweden').

Note that at the same time macro economists are talking about the business cycle, and the purported fit of one of these models to it, they are cheerfully ignoring the applicable Nyquist limit for whatever period cycle they believe they've identified.

Again to use Iceland - because it's a diddly little country and very easy to study. They stop the charts in 2005 because after that, there is a complete deviation from the model, which the model needless to say completely failed to predict. However, anyone who spent half an an hour looking at the Icelandic monetary statistics would have been able to identify clear warning signals from 2003 onwards, and some pretty clear analyses were being issued on that within the financial community by 2005.

Rumour has it the only use Wall Street has for DSGE models is to try and predict whatever crazy thing the central banks will do next.

http://www.bloombergview.com/articles/2014-01-21/wall-street...

[pzone]

Calibration here means simulation to find the right parameter values. Genetic algorithm isn't particularly useful here, it's a more general high dimensional optimization problem.

But if you can cut down the simulation time from e.g. a weekend to a few hours, that is huge in terms of allowing you to find a good specification.