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by zissou
4785 days ago
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The underlying reason I think most DSGE models are absolute hogwash is that they do economics backwards. Economics is supposed to test theories against data. Instead, in the world of calibration in macroeconomic models, the creator of the model is now testing data against theory by tuning parameters to values they think are good. It is completely backwards. While I appreciate the attempt to make macroeconomics more computational, I believe DSGE goes about it in the wrong direction. In an ideal world, I'd like to see models like the Leontief Input/Output model come back to fruition. In Leontief's model (which is often given as an example in many undergrad linear algebra classes), the economy is divided into many sectors. Data is organized on each sector to estimate its influence on other sectors. In an age where data is so vast, I just don't understand how one can decide that building deeper macro theories is a good idea. We need better empirical models, not better theoretical models (we have enough of those). |
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This is a little inaccurate, the purpose of these macroeconomic models is either to make future predictions or run simulations to see what happens when exogenous shocks occur. They're not "testing data against theory", the data is used for parameter estimation and then verifying the accuracy of the models. It's actually very similar to the way certain AI models are developed and trained.
I do agree that these models are usually pretty inaccurate and somewhat useless though.