Does Macroeconomics Have a DSGE Future?

Abstract

Abstract Dynamic stochastic general equilibrium (DSGE) macro theory has lots of problems, many of them nicely listed and outlined in Servaas Storm’s article, “Cordon of Conformity: Why DSGE Models Are Not the Future of Macroeconomics.” Recognition of those fallacies is useful reading, but is unlikely to change the current state of macro theory, which is deeply entangled with DSGE elements. A major reason why is that the arguments for macroeconomic intervention versus nonintervention are, to a large degree, not based on macro theory. They are based on moral, empirical, and institutional judgements that extend far beyond economics. Neither critics nor DSGE economists discuss them, and both allow macro theory to hide those judgments.