Assuming Wolfers and DeLong and I aren’t just blowing smoke out of our rear ends, and DSGE models really don’t work, why do so many macroeconomists spend so much time on them?
Pointer from Mark Thoma. Smith refers to Brad DeLong’s post, in which he writes,
DSGE macro–has indeed proven a degenerating research program and a catastrophic failure: thirty years of work have produced no tools for useful forecasting or policy analysis.
As for Noah’s possible explanations for how the profession got into that cul de sac, and why it remains there, I vote for a combination. I endorse the following snippets of his post:
Maybe since macro data is very uninformative, no one actually knows what good research looks like, so they all settle on some random thing
In my new book, I say that economists in general, and macroeconomists in particular, deal in interpretive frameworks rather than in testable hypotheses.
it’s just fun for some people to do
I always suspected that Stan Fischer and Olivier Blanchard liked their preferred models because they found the math fun. They found it even more fun when they could see that other people had trouble following the math.
if the prevailing research paradigm is not really better than alternatives, then you probably want macroeconomists who are willing to “play the game”, as it were. So DSGE might be an expensive way of proving that you’re willing to spend a lot of time and effort doing silly stuff that the profession tells you to do.
Sad, but true.
I see this as vindication. During the thirty years that I abandoned interest in academic macroeconomics, I missed nothing. It was not me that was being obtuse. It was the profession.
Wolfers and Smith are about as out of touch with modern macro as you are. There has been a revolution in the last 15 years or so, with a big focus on heterogeneity. The math looks superficially similar to the Blanchard/Fischer stuff you hate, but it’s actually dramatically different and yields far better insights. The data used are rich and provide actual, meaningful links between macro and micro. It’s not perfect, but critics like you, Wolfers, and Smith should start from macro as it is currently studied rather that beating the dead horse of 1980s-90s rep agent.
I was going to make my obligatory math in academia comment, but it is essentially what Kling anf Smith already said, here.
It seems like we really should want to avoid every department being taken over by failed physicists and math majors.
I think that Ryan is correct, macro has changed since 2000 for the better. But I don’t think DeLong is wrong to say that new macro has yet to provide us with useful tools for policy or forecasting.
I find interesting that Ed Prescott, one of the leaders of DSGE macro, talks about “aggregate economics” not macroeconomics. He wants to build an aggregate version of micro theory, and does not want anything to do with Keynesian or neo-Keynesian models — if I understand correctly.
I agree–new het agent macro is doing a lot of things, but providing tools for forecasting is not one (yet).
Ok I will bite. What are the achievements of the new macro?