Wednesday, April 23, 2014

Mark Buchanan — Economic orthodoxy is going down … even if most economists don’t yet know it


DSGE on the way out. ABM the wave of the future.

Physics of Finance
Economic orthodoxy is going down … even if most economists don’t yet know it
Mark Buchanan

2 comments:

Ralph Musgrave said...

Mark Buchanan makes the very debatable point that modelling with supercomputers will improve economics. The big and blindingly obvious problem there is that there is a huge lack of agreement as to what to feed into the computer. E.g. do we give it an MMT view of economics or a market monetarist view or what?

Brian Romanchuk said...

I agree with Mark that DSGE models are a dead end. I admit that I am not familiar with agent-based modelling, but I would guess that they have the same problem that overlapping generations models have - small tweaks to the "micro" behaviour mean large changes to the "macro" behaviour of the model.

This is a great technology for a video game, or for teaching models. You are telling a story about a fictional world.

But it will be very hard to impossible to fit to real-world data. But that is what the mainstream wants to do. To do that, you need to stick with an aggregated model, like a Stock-Flow Consistent model.