Talk:Dynamic stochastic general equilibrium

Class
Stub!!?? Certainly more material could be added, but I don't favor long articles in which the main points get lost. I can't see how this could be considered a stub under the assessment scale. --Rinconsoleao (talk) 12:47, 1 July 2008 (UTC)
 * Agree that the assessment is off. Reassess per WP:ECON/A. -FrankTobia (talk) 01:53, 17 August 2008 (UTC)

Questions
1. Is there any difference between the terms DSGE (dynamic stochastic general equilibrium) and DGE (dynamic general equilibrium) or are the terms perfectly identical? 2. I have a book in front of me saying that New Classical Economics mark I, i.e. the Rational Expectations School, used "dynamic general equilibrium" models. This article says that DSGE started only with the RBC theory, i.e. in 1982. Is the book wrong? Visitor. —Preceding unsigned comment added by 195.98.14.140 (talk) 21:10, 5 April 2010 (UTC)
 * It's usually hard to draw clear, bright lines between economic methodologies, and it's also hard to force everyone to use a perfectly standard vocabulary. The simple answer to (1) is that there is not much difference, and the simple answer to (2) is that both the article and the book are roughly correct.


 * The more precise answer to (1) is that DSGE models are DGE models that include random shocks. Most DGE models today do include random shocks, because that's more realistic; only a few, very simplified ones don't. So nowadays people mostly use the term "DSGE" to refer to dynamic, microfounded macroeconomic modeling in general. On the other hand, some people would instead use the term "DSGE" to refer to relatively large models that incorporate many aspects of the economy (consumption, investment, employment, monetary policy, etc.) and might not classify a very simple macroeconomic model primarily focused on one aspect of the economy (for example, the Ramsey growth model) as DSGE, even though methodologically it is a microfounded general equilibrium model.


 * As for (2), the Rational Expectations school developed in the 1970s, and the Kydland-Prescott paper was written before its 1982 publication date, so there is really not much inconsistency in the dates you mention. Presumably the main papers your book is talking about are the ones Thomas Sargent and Neil Wallace published in the 1970s about how inflation behaves under rational expectations. Technically, these were DGE models. Nonetheless, they focused only on one very specific issue (inflation). Later, when Kydland and Prescott published their 1982 paper, claiming fluctuations in consumption, investment, and labor could be explained by random shocks to productivity, people began to take more seriously the possibility of writing down a complete description of business cycles in a DGE framework. So that's why their paper is usually seen as the birth of DSGE modeling. --Rinconsoleao (talk) 09:26, 7 April 2010 (UTC)

3. Newbie question: Is it too soon to add to the "Controversies" section Paul Romer's critique of misuses of DGSE and policy inferences therefrom ("The Trouble with Macroeconomics" https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf)? Or wait for it to be published in The American Economist?CambridgeOrbital (talk) 19:37, 25 September 2016 (UTC)
 * It's in. -The Gnome (talk) 08:02, 30 May 2018 (UTC)

Recent advances
Especially with all the work on adding financial frictions to DSGE models, maybe it is time for a section on "recent advances". Topics discussed could include: Rinconsoleao (talk) 08:34, 20 July 2010 (UTC)
 * DSGE models with matching frictions
 * DSGE models with financial frictions
 * Bayesian estimation of DSGE models
 * Heterogeneous agent DSGE models

Suggestion on wording
In the section on the Structure of DSGE models in the second paragraph it says: ". They are also stochastic, taking into account the fact that the economy is affected by random shocks such as technological change, fluctuations in the price of oil, or errors in macroeconomic policy-making".

I would suggest to replace the term "errors in macroeconomic policy-making" with the more value-neutral formulation of "changes in macroeconomic policy".

I am new around here, so I just wanted to suggest this before making the edit myself. Julius Fries (talk) 18:04, 6 April 2011 (UTC)

Dr. Mourougane's comment on this article
Dr. Mourougane has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"In the introduction, it would be useful to state that DSGE are now widely used in central banks for policy simulation analysis. In terms of forecasting performance, it is not clear whether the outperform standard macro-economic models or not. It should be also states that models are either calibrated or estimated, using bayesien procedures.

The sentence "The model is intended as an alternative to the Area-Wide Model (AWM), a more traditional empirical forecasting model which the ECB has been using for several years." is not correct anymore. The ECB has now developed a new AWM which is a DSGE-based. (https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp944.pdf?383d445af1f1b505066c82ad2340852d)

In the disadvantages of DSGE, some modellers often argue that their simulations outcomes only reflect their underlying calibration assumption. In particular, results only depend on the value of key parameter (eg the share of non-ricardian households in the total)."

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Dr. Mourougane has published scholarly research which seems to be relevant to this Wikipedia article:


 * Reference : Davide Furceri & Annabelle Mourougane, 2010. "The Effects of Fiscal Policy on Output: A DSGE Analysis," OECD Economics Department Working Papers 770, OECD Publishing.

ExpertIdeasBot (talk) 18:25, 27 June 2016 (UTC)

Dr. Casares's comment on this article
Dr. Casares has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"In the second sentence i would have said: "The DSGE methodology provides short-run fluctuations of aggregate economic variables to explain the determinants of business cycles. Typically, the analysis looks at the effects of stabilizing policies, market imperfections, and idiosyncratic shocks. The models are derived from microeconomic principles with rational expations, and assume market rigidities of the Keynesian tradition""

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Dr. Casares has published scholarly research which seems to be relevant to this Wikipedia article:


 * Reference : Miguel Casares & Jesus Vazquez, 2012. "The Great Moderation of Inflation: a structural analysis of recent U.S. monetary business cycles," Documentos de Trabajo - Lan Gaiak Departamento de Economia - Universidad Publica de Navarra 1215, Departamento de Economia - Universidad Publica de Navarra.

ExpertIdeasBot (talk) 18:54, 27 June 2016 (UTC)

Dr. Fehr's comment on this article
Dr. Fehr has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"I think it is a very good article. Hardly anything to improve."

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Dr. Fehr has published scholarly research which seems to be relevant to this Wikipedia article:


 * Reference 1: Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Reforming Family Taxation in Germany: Labor Supply vs. Insurance Effects," SOEPpapers on Multidisciplinary Panel Data Research 613, DIW Berlin, The German Socio-Economic Panel (SOEP).


 * Reference 2: Hans Fehr & Daniela Ujhelyiova, 2010. "Fertility, Female Labor Supply, and Family Policy," SOEPpapers on Multidisciplinary Panel Data Research 331, DIW Berlin, The German Socio-Economic Panel (SOEP).

ExpertIdeasBot (talk) 08:24, 28 June 2016 (UTC)

Dr. Schorfheide's comment on this article
Dr. Schorfheide has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"1) By now the abbreviatins SDGE and DGE are rarely used. There was some discussion in the early 2000s about how to call these models, but by now the majority of the profession adopted DSGE

2) The statement that most central banks rely on traditional macroeconometric models for short-term forecasting is inaccurate. It is true that there are few institutions that rely on DSGE models for short-term forecasting, but the suite of models used for short term forecasting is much larger than "traditional macroeconometric models." It includes VARs, dynamic factor models, mixed frequency models, etc...

3) Rotemberg and Woodford (1997) were not the first to introduce the New Keynesian framework. The general setup evolved over a decade or more. They created an econometric framework that allowed them to do empirical work with NK DSGE models. However, that particular framework, was not adopted by the subsequent literature. It is certainly an influential paper but "first to introduce" is not correct.

3a) Intellectually, Chris Sims was very influential in transforming the RBC agenda into a research agenda that develops models useable for the analysis of monetary policy. While the model in http://www.nber.org/papers/w4761 was never really adopted, the paper sets out an important agenda. Importantly, it argues for likelihood based estimation of DSGE models at a time when the majority of the profession was calibrating these models. Likelihood-based estimation is important for tracking data and forecasting.

4) Frank Smets (and Raf Wouters) developed the Smets and Wouters model after Smets moved to the ECB, but at the time it was not an official model at the ECB. In fact, the Riksbank adopted an open economy version of the Smets-Wouters model much earlier than the ECB officially started to use its New Area Wide model (which is built on the SW model).

5) Intellectually, the SW model builds on the model developed by Christiano, Eichenbaum, and Evans (2005, JPE) (Don't let the publication date fool you). It augmented the CEE model by additional shocks, so that it could be estimated on and a fairly large (7) set of macroeconomic aggregates. The key contribution of SW was to combine an expanded CEE model with the emerging Bayesian estimation methods for DSGE models to demonstrate that a DSGE model could produce reasonable macroeconomic forecasts, which made it attractive to central banks.

6) I would not call Mankiw a "founder" of New Keynesian *** DSGE modeling ***.

7) BEQM was not a DSGE model and is retired by now. So, I would not add it to the list of references. You might want to reference the Riksbank model and the NAWM of the ECB. Also, the FRB New York recently put its DSGE model on the web http://libertystreeteconomics.newyorkfed.org/2015/12/the-frbny-dsge-model-meets-julia.html#.V3PDUnrGr38 Marco Del Negro and I have written a lot on DSGE model forecasting. Links to some liberty street blog pieces are available here: https://sites.sas.upenn.edu/schorf/pages/blogs-etc We also have a handbook chapter on DSGE model forecasting: https://sites.sas.upenn.edu/schorf/publications/dsge-model-based-forecasting"

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We believe Dr. Schorfheide has expertise on the topic of this article, since he has published relevant scholarly research:


 * Reference : Del Negro, Marco & Hasegawa, Raiden B. & Schorfheide, Frank, 2014. "Dynamic prediction pools: an investigation of financial frictions and forecasting performance," Staff Reports 695, Federal Reserve Bank of New York.

ExpertIdeasBot (talk) 19:46, 1 July 2016 (UTC)

Dr. Benchimol's comment on this article
Dr. Benchimol has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"Some perspectives are missing: - DSGE models in other fields (such as biology or physics for instance. - Some schools are missing: sunspot, news shocks etc... - How these models are used in central banks ? and for which objectives ?

This article should be enriched by baseline and popular models currently used in the literature including a timeline: - 1998: Kollmann, Robert, 1998. "US trade balance dynamics: the role of fiscal policy and productivity shocks and of financial market linkages," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 637-669, August. - 2005: Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February. - 2003: Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. - 2007: Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June. - 2012: Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Slow Recoveries: A Structural Interpretation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 9-30, December.

Last but not least a large part of this article is focused on the disadvantage of DSGE models and controversy. I think it could be useful to highlight advantages of DSGE model.

DSGE models are also widly used by central banks for analysing as well as forecasting the economy. This should also be highlighted. New DSGE models include original features such as financial, labor market and banking frictions. Such models, as well as nonlinear DSGE models, allow new understandings of economic stylized facts.

References Hashmat Khan & John Tsoukalas, 2012. The Quantitative Importance of News Shocks in Estimated DSGE Models, Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1535-1561, December.

Slanicay Martin, 2014. Some Notes on Historical, Theoretical, and Empirical Background of DSGE Models, Review of Economic Perspectives, De Gruyter Open, vol. 14(2), pages 20, June."

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Dr. Benchimol has published scholarly research which seems to be relevant to this Wikipedia article:


 * Reference : Benchimol, Jonathan & Fourçans, André, 2012. Money and risk in a DSGE framework: A Bayesian application to the Eurozone. Journal of Macroeconomics, vol. 34(1), pages 95-111.

ExpertIdeasBot (talk) 16:21, 19 May 2016 (UTC) — Preceding unsigned comment added by I.yeckehzaare (talk • contribs)

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RE-BOOT
Greetings, everyone. I suggest a rather major re-write of the text, in two steps: One step is taking care of housekeeping: removing from the “See also” section wikilinks already in the article; wikifying all citations per the relevant templates; and correcting orthographical errors.

The next step would concern, of course, the article’s substance where I’d suggest the following architecture:

A introduction with a short definition, and much shorter text than what we now have. Then, the following sections:
 * Origins with a brief historical background
 * RBC modeling detailing how the models came about
 * The Lucas critique with an intro to that seminal work
 * Response to the Lucas critique where we'd present the most significant models that were developed as a response to Lucas
 * DSGE modeling in two sections: Structure explaining how the models go about (something similar to the current text but with citations), and  Schools with a brief exposition of the two main schools.
 * Then, importantly, we'd go to a section titled Criticism (rather than the confusing title "Controversy"), split in two subsections: From mainstream economics, which aims at improving and validating DSGE methodology; and From heterodox economics, which rejects altogether the DSGE approach.
 * We could conclude with a section bearing a title such as Continued support.

Any comments? Many thanks in advance. -The Gnome (talk) 12:02, 1 April 2018 (UTC)


 * Opinions and critique about the article's expanded and, one hopes, somewhat more informative content would be very welcome and appreciated. -The Gnome (talk) 12:57, 3 April 2018 (UTC)


 * Thanks for your work on it! One thing that is not particularly clear (for me and I'm definitely not an expert) is on what kind of microfoundations the building blocks of this model can be built. Or what set of them is compatible with DSGE models? Which ones are usually used for real-world modelling, say by central banks? Alaexis¿question? 19:14, 13 September 2018 (UTC)

Microfoundations
I found the following description of the DSGE model microfoundations at the Italian Treasury site. I'd like to add them to the article, would be great if someone reviewed them. Alaexis¿question? 08:16, 1 January 2019 (UTC)

Dsge and Lucas critique
From the text in this article, one gets the impression that the criticism from Lucas makes this kind of modeling unsatisfactory due to the decision-making having to be preset. I find that this is not necessary true and that a more flexible model having the ability to balance and reset the decision-making criteria during the simulation process is not only possible but most desirable so that the program is more able to be realistic.Macrocompassion (talk) 09:48, 27 October 2020 (UTC)

Definition needed in intro
The article starts by saying what DSGE, but not what it. It needs to start with a brief definition in the first sentence. I don't know enough about the subject to define it, so must leave it to others. Something like "DSGE is a macroeconomic method. Earlier models were essentially static; DSGE is a way of modelling the economy that is dynamic, taking into account demand, supply, and the monetary policy equation using statistical methods. DSGE is often employed by monetary and fiscal authorities for policy analysis ..." but better. Best wishes, Pol098 (talk) 11:16, 30 May 2022 (UTC)