Here.
Dynamic Stochastic General Equilibrium (DSGE) models, which have played such an important role in modern discussions of macroeconomics, in my judgment fail to serve the functions which a well-designed macroeconomic model should perform. The most important challenge facing any macro-model is to provide insights into the deep downturns that have occurred repeatedly and what should be done in response. It would, of course, be even better if we had models that could predict these crises. From a social perspective, whether the economy grows next year at 3.1% or 3.2% makes little difference. But crises, when GDP falls and unemployment increases, have large consequences for individual well-being now as well as for future growth. In particular, it is now well recognized that periods of extended economic weakness such as confronted by the US and Europe after 2008 have significant implications for future potential growth.
From:
Joseph Stiglitz
Columbia University
Comment:
(As is a common practice, here "macroeconomics" is being treated as synonymous with "business cycle theory." Actually macroeconomics typically encompasses growth theory and theory of inflation as well. At least it does if you think all economics is either in the microeconomics box or macroeoconomics box.)
Dynamic Stochastic General Equilibrium (DSGE) models, which have played such an important role in modern discussions of macroeconomics, in my judgment fail to serve the functions which a well-designed macroeconomic model should perform. The most important challenge facing any macro-model is to provide insights into the deep downturns that have occurred repeatedly and what should be done in response. It would, of course, be even better if we had models that could predict these crises. From a social perspective, whether the economy grows next year at 3.1% or 3.2% makes little difference. But crises, when GDP falls and unemployment increases, have large consequences for individual well-being now as well as for future growth. In particular, it is now well recognized that periods of extended economic weakness such as confronted by the US and Europe after 2008 have significant implications for future potential growth.
From:
Joseph Stiglitz
Columbia University
Comment:
(As is a common practice, here "macroeconomics" is being treated as synonymous with "business cycle theory." Actually macroeconomics typically encompasses growth theory and theory of inflation as well. At least it does if you think all economics is either in the microeconomics box or macroeoconomics box.)