‘Uncertainty’ in Contemporary DSGE Modelling: Not Even Wrong

Fixing the Economists


Confusion of thought and feeling leads to confusion of speech.

— John Maynard Keynes

Readers will note that I very rarely discuss DSGE modelling on here. Frankly, I’m not enormously interested. The fad is one in which economists — or, we should rather say: mathematicians with some loose economic training — have come to mistake analogy for literal explanation.

What do I mean by that? Simply that they have taken certain contingent theoretical statements made by previous generations of economists as Iron-Clad laws and then used these as building blocks to construct ever more Byzantine towers that tell us nothing about how the economy actually operates. This has given rise to a funny game where theorists no longer really build models to give us new insights. Rather they tend to try to integrate things that have already happened and thus they try to tailor their models to fit the discourse…

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