Hendry and Mizon summarised a recent paper of theirs on VoxEU explaining that DSGE models break down in crises because these events involve shifts in the distribution of observeables that fixed-parameter, fixed-variance DSGE models can't articulate. They tell the story in a way that a lay reader might conclude is catastrophic for microfounded, dynamic macroeconomics, and/or rational expectations.
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[nerdy] Reply to Hendry and Mizon: we have…
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Hendry and Mizon summarised a recent paper of theirs on VoxEU explaining that DSGE models break down in crises because these events involve shifts in the distribution of observeables that fixed-parameter, fixed-variance DSGE models can't articulate. They tell the story in a way that a lay reader might conclude is catastrophic for microfounded, dynamic macroeconomics, and/or rational expectations.