Wednesday, March 28, 2018

Brian Romanchuk — The Curious Notation Of DSGE Models

This article is an appendix to my earlier articles on dynamic stochastic general equilibrium (DSGE) model accounting (here and here). The problem with my understanding of DSGE appears to be that I assumed that the DSGE modellers were using mathematical notation in a standard fashion. I now realise that the secret sauce to DSGE modelling is a blatant disregard to mathematical notation. I had pointed out that I was missing something; my assumption that there were some super important theorems from microeconomics that everyone was invoking, but not formally specifying. Instead, the answer is much simpler: the notation used was misleading, if not outright incorrect.

(I have been hit with a number of projects recently -- including a MMT presentation at Concordia University last night. As a result, this article is relatively brief and tentative. I will return to a more meatier conclusions when I discuss the treatment of the governmental sector. Note that my earlier articles hinted at what I discuss here, but I had not gone to far in formalising this. The formalisation is a key step; if the notation is wrong, the only way to deal with the problem is to fix the notation.)…
Bond Economics
The Curious Notation Of DSGE Models
Brian Romanchuk

25 comments:

Matt Franko said...

The disconcerting part of this problem definition is the curious appearance of the phrase "set of conditions chosen by a researcher R." I take a somewhat hard line stance towards mathematics: mathematics is the study of sets, and operations on sets ..... In this case, we have a ghost in the machine - we have a human being popping up and picking conditions that define the set of allowed operations.“

They’re not really “choosing” they are determining them... so you can’t have an alleged stochastic analysis where you have a human being determining the conditions..

Matt Franko said...

Bill said the same thing the other day Iirc he said the CB ‘chooses’ the policy rate... I don’t think ‘chooses’ is perhaps the best description...

Tom Hickey said...

The Fed does "chose" (set) the policy rate (FFR), but it "targets" this rate in the overnight market.

Matt Franko said...

Where is the menu that they choose from?

Link please?

Matt Franko said...

Tom this is similar to the dust up in Darwin from a while back where Shapiro said gene splicing wasn’t ‘Darwinian science’ because people were going in to the genome and determining the structure... ie for Darwin one has to replicate a stochastic process...

Tom Hickey said...

Where is the menu that they choose from?Central bankers, led by Jerome Powell in his first meeting as chairman, approved the widely expected quarter-point hike that puts the new benchmark funds rate at a target of 1.5 percent to 1.75 percent. It was the sixth rate hike since the policymaking Federal Open Market Committee began raising rates off near-zero in December 2015. —CNBC

Matt Franko said...

You see this pattern repeat itself where some people are biased towards stochasticism others not so much and are biased deterministic... its a bias that runs thru science/religion/philosophy.... everything ...

Matt Franko said...

Why didn’t they go to 5%? Wasn’t on the menu?

Matt Franko said...

Your taking the Henry Ford approach where he said you could have any color Model T color you wanted as long as it was black...

So the menu of colors only had one color black... you can’t make a choice if only “one option” (oxymoron)...

Tom Hickey said...

Tom this is similar to the dust up in Darwin from a while back where Shapiro said gene splicing wasn’t ‘Darwinian science’ because people were going in to the genome and determining the structure... ie for Darwin one has to replicate a stochastic process...

Both are technocrats trying to determine natural processes that are stochastic in the sense of arrived at through agency.

There is no agency in natural processes that are the subject of natural science.

Life science and social science are characterized by agency.

So far, science has not explained agency other than by handwaving.

Agency boils down to three basic attributes, absolutely essential to the life and behavioral sciences, and completely irrelevant in the physical sciences:

Effort: Trying, which is what’s meant by behavior in contrast to mere phenomena. Chemicals don’t try to do anything. Agents do.

Function: The effort is of benefit for the agent. An agent’s adaptive traits are functional because they improve the agent’s chances of succeeding at what’s of value to it, chiefly survival and reproduction. Nothing is of value to chemicals, but things are of value to agents.

Fittedness: Which is different from material conformity. Molecules may fit together physically but that’s different from fittedness, responsiveness to context.

No physical scientist could get away with saying that chemical changes try to keep going for their own sake. Down the hall, behavioral scientists can talk all they like about agents trying to keep going for their own sake. What explains this double standard? Scientists still have no answer, though they could.


https://www.psychologytoday.com/us/blog/ambigamy/201803/intelligent-designs-one-valid-scientific-point

Matt Franko said...

Goin’ deep here Tom I’m gonna g to have to read what you’ve posted here for 3 days minimum....

Matt Franko said...

Tom I would point out that "Intelligent Design" is a non-Scriptural phrase that Paul NEVER taught...

I would point out the scripture: " for in my flesh, dwelleth no good thing:" Rom 7:18

Creation seems to work via BOTH 'division' and 'recombination'... ie no 'division' or no 'recombination' then no 'creation'...

If you read the Genesis account, God creates the man from the 'soil of the ground' (recombination) and then creates the woman out of the man (divides the man) and then the man and woman 'recombine' physically ;) and bio chemically to create we of mankind...

iow, you have white light, you can divide white light into component frequencies and get say blue and red light, ie from division of the white light... then you can 'recombine' the red and blue light into purple light which you cannot see as a component of white light... ie the color purple is only created thru a recombination of red and blue light...

these appear to be universal concepts... ie division and recombination...

Same with biochemistry, you can divide the atomic components, ie protons, electrons, etc... then when they are recombined you can have a hydrogen atom with 1 electron or oxygen atom with 8 electrons, and then if you recombine them into H2O you can create water ... etc..

All those Christendom ID people like Ken Hamm if you look into their statements of faith it is all infested with the Hell Doctrine where its a pagan thing like "God vs. the Devil!" and behavior modification via "free will" and other non-Scriptural concepts... all you have to do there is ask them why people are born with birth defects then? Bad design???? and you have them...

ID is more or less a rabbit hole imo... the scriptures are not an empirical explanation and if you attempt to somehow explain these things empirically its never going to work... ie empirical explanations should be reserved exclusively for purely material (fleshly) matters... it works there...

Greg said...

Good to see you found that Jeremy Sherman stuff Tom, I should have guessed you’d have come across it as voracious a reader as you are.

Did you read the book he wrote? Pretty interesting stuff

Matt Franko said...

Scripture here: "They put a purple robe on him" Mark 15:17

Its a tip off (ie 'purple').... ie the Lord was a product of 'recombination' (in the flesh at least...)

In any case, the key takeaway is 'recombination'... ie the REAL reason electromagnetic theory exists is so that scripture can be understood...

Tom Hickey said...

@Greg

I assume you are referring to Neither Ghost nor Machine: The Emergence and Nature of Selves. I haven't read it.

Sherman appears to base his work on Terence Deacon. Deacon's Incomplete Nature: How Mind Emerged from Matter is on my to-do list.

My own view is that there is no reason that a naturalistic view based on the gross world cannot be constructed that (mostly) explains the gross world of physicality.

There is an unwarranted presumption that a satisfactory explanation in terms of physicality obviates other explanations. But if the gross world is not the whole, then the account won't be complete. There will still be anomalies.

According to perennial wisdom, the gross world is a grosser manifestation of the subtle world, and the subtle world is a grosser manifestation of the causal world. All three worlds are manifestations of the Absolute.

That is to say, the same reality is reflected differently in gross consciousness, subtle consciousness, mental consciousness, and infinite consciousness. Knowledge is structured in consciousness — that is, according to the mode of the knower — and so reality appears differently in different states of consciousness. This view is expressed and testified to in the major wisdom traditions.

The sages set this forth as being entirely naturalistic from the vantage of non-ordinary (gross) cognition. For example, see Meher Baba's God Speaks for a conceptual model that he claimed to be based on direct acquaintance with the whole from the POV of infinite awareness. A major advantage of this model is that it was published in 1955 (1st edition, Dodd Mead) and composed in English, and it gives correlates to Sanskrit and Arabic terms of Vedanta and Sufism respectively. The English is similar to Western spiritual and philosophical literature. Another advantage is that explicitly treats of evolution but in a non-Darwinian way that is not incompatible with the contemporary evolutionary theory.

Intelligent design is not in terms of agency (creation) but manifestation (emanation). The "intelligence" of the process is based on the inherent nature of the Absolute that gets reflected in grosser media. Basically, it is the reason that the "real world" can be known conceptually, concepts can be expressed linguistically, and science modeled mathematically.

Matt Franko said...

I'll refute all 3 of his points on agency:

He says:

"Agency boils down to three basic attributes, absolutely essential "

ok 1: "Effort: Trying, which is what’s meant by behavior"

Many times we give up, quit...

2: "Function: The effort is of benefit for the agent."

Much effort is expended in doing heroin which kills thousands...

3: "Fittedness: fittedness, responsiveness to context."

Many remain ignorant even though empirical context reveals otherwise... we above all can see this wrt numismatic systems.. ie 'out of money!" from the morons, etc... meanwhile we never run out... "QE money printing causes inflation!" then prices collapse, etc...

so this is all off the mark...

Not one of his main 3 big points is true..

Matt Franko said...

Tom,

Why dont all of these morons just f-ing read the sages and learn something????? Instead of trying to just make shit up all the time....

Hard to understand....

Matt Franko said...

Tom, can you expand on the use of "gross" in your para above?

Not getting it... relative scale? size? not getting it...

jrbarch said...

This is mind: - comes up with four explanations of a ‘wall’ - then believes it has made a grand leap ahead with a fifth explanation. Kabir who was always politically incorrect called these people goats – ‘long-beards’. People ‘explain away’ the divine so that they can place what is closest to them, furthermost away. Privacy preserved, they then do whatever they feel like. This is called intelligence. Or they smother it with a religion.

If you have had no experience of the divine within you, of course you will be an atheist or agnostic. That is your experience. Who could not respect that? But if you are incredibly ignorant and arrogant, you will dismiss as hallucinatory all human experience down the millennia and voices attesting to a divine (no matter how weirdly interpreted); placing your own non-experience above and beyond the deluded ‘mystics’. It may be mysterious to you but it was not mysterious to those who truly enjoyed the divine within them. There are actually a million and more of them on this earth today – and they don’t need a PhD to tell them what they feel. These people know the answer to all of those five questions without debate. They know through experience; where mind is just a witness – astounded at first, then delighted. The divine is the only thing I know of inside of a human being that can shut the mind up for a while. Place the external world in context.

Let me try a little scale here: a human being measures consciousness and intelligence, in fact EVERYTHING by his own favoured yardstick. Now what would you think of a little ant or amoeba doing just that. What do you imagine the little ant or amoeba’s definition of ‘everything’ is; or their divine. How illustrious is the Queen Ant; how diminished is the worker ant; how very important is the ant species in an almost limitless universe? A human being is so arrogant they will paint a picture of that universal energy that is divine, depict it as a man (?????), glowing eyes, long beard flowing; reaching down to this important stuffy little being who is so elevated, he can reach up to touch the finger of his Creator. Ha!!! That would be like a 10W lightbulb touching all of the energy in the universes.

But if you read the accounts of people who have experienced that energy within them, they all say much the same thing: - all of Life emanates from the One. That One is further beyond you as a human being, as the edge of the universe is to the lamps reflected in your eyeballs; and yet closer to you than your breath. How can this be? How can the Infinite be stepped down and placed inside of the finite, and we not only survive the contact, but it becomes our lifeline; our greatest joy, giving everything value. It is the inner Reality.

For those who have experienced the divine with them, they will claim it as their own. And nothing the academics can say will touch them, because they Know. That Knowledge is deeper than all of the libraries, all of the sciences and humanities, in the world. Who can understand that? With what do you measure that Mr(s) PhD? All of these people will one day put you on notice. Joy is incredibly infectious.

This is what self-knowledge is. Knowing. Knowing is the only proof you will get and knowing is the only proof you will need: - knowing you will take with you when it is time to go and in knowing you will recognise among all of the strangers, anyone that knows – nothing eclipses the sun (it’s just where you happen to be standing if you see a shadow passing by). Something is blocking your view. If I wanted to harm you I would be harming myself. Why would I want to do that? I would have to be insane to want to do that – do you realise? To understand how far mind has taken man from himself. Separation is our deepest sin!

Self-knowledge will eventually end up as the new psychology: the enlightenment of mind. Life doesn’t care if you are a peasant or a King, or what your share portfolio, religion or science is. It cares about blossoming into life.

The heart is the true sovereign of a human being.

Tom Hickey said...

Tom, can you expand on the use of "gross" in your para above?


In the model of perennial wisdom

The gross world is the physical world perceived by the senses. Those with gross consciousness identify the physical world as "reality," although it is only a limited aspect.

The subtle world is the world of life energy.

The causal world is the world of mind.

Those with gross consciousness know the physical world directly through the gross senes. They use life energy and mind but do not know them directly.

Those with subtle consciousness know life energy directly.

Those with mental consciousness know mind directly.

Those with infinite consciousness know the whole directly as the eternal now.

AXEC / E.K-H said...

Brian Romanchuk

You announced a tripartite analysis of an elementary DSGE model and after part 2 you suddenly realize that the notation of DSGE models is “curious”. This tells everyone that you have not understood from the very beginning what you are talking about.

At the end of your second post, I summed up: “Lars Ljungqvist’s and Thomas Sargent’s DSGE is proto-scientific dreck. Nobody with more than two brain cells needs three lengthy posts to arrive at this conclusion.”

Your analysis and critique of DSGE is a pointless exercise. Everybody knows by now that the microfoundations approach is dead. Standard economics is dead. DSGE is dead.

Economics needs a Paradigm Shift because the main approaches ─ Walrasianism, Keynesianism, Marxianism, Austrianism ─ are axiomatically false and materially/ formally inconsistent.

Endless recycling of long-dead theories/models is not science.

Economics is what Feynman called a cargo cult science, economists are failed/fake scientists, the Bank of Sweden Prize in Economic Sciences is a deception of the public. Economics is one of the worst cases of theory failure in the history of modern science ─ and you are part of it.

Egmont Kakarot-Handtke

AXEC / E.K-H said...

jrbarch, Tom Hickey, Matt Franko

The Lord spoke out of the bush and handed over these
Twelve Economics Commandments:

1. Never cite the Bible or other religious texts in an economic argument.

2. Maintain the strict separation of science and religion under all circumstances.

3. Maintain the strict separation of science and politics under all circumstances.#1

4. Do not dabble in Psychology, Sociology, Anthropology, History, Political Science, Philosophy, Social Philosophy, or any other of the so-called social sciences.

5. Do not believe: prove.

6. Figure out how the actual economic system works and communicate your results in the format of a materially/formally consistent theory.

7. Absolutely refrain from storytelling, metaphors, analogies, narratives, gossip, insinuation, filibuster, propaganda, disinformation, and other rhetorical means.

8. Do not apply Methodological Individualism/Microfoundations.#2

9. Do not moralize, the subject matter of economics is IS not OUGHT. How the Good Society can be realized has to be determined in the political sphere. See 3.

10. Be, first of all, aware that there are knowledge and opinion, science and non-science, scientific standards/ethics and anything-goes, true and false with nothing in-between. The ethics of science is objectivity, i.e. material and formal consistency. The objective of economics is the true theory.

11. Rest assured that those who violate scientific standards/ethics go to hell and will be tortured in all eternity with the senseless blather of Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.#3

12. Make no mistake: alone scientists will go to heaven. As you can easily imagine, the Lord will not share eternity with morons, imbeciles, political agenda pushers, blatherers, trolls, believers, the bigots of common sense, and failed/fake scientists.

Egmont Kakarot-Handtke

#1 The strict separation of the scientific realm and the political realm is necessary because politics always and everywhere corrupts science. This point has been made abundantly clear by J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” For details see Throw them out! Orthodox and heterodox economists are unfit for science
http://axecorg.blogspot.de/2017/12/throw-them-out-orthodox-and-heterodox.html

#2 If it isn’t macro-axiomatized, it isn’t economics
http://axecorg.blogspot.de/2017/02/if-it-isnt-macro-axiomatized-it-isnt.html

#3 Economics is not a science, not a religion, but proto-scientific rubbish
http://axecorg.blogspot.de/2017/07/economics-is-not-science-not-religion.html

jrbarch said...

13. Don't worship formulas and mantras - mind will take you out into a desert and dump you there; or catch you up in an endless loop, hard to escape. You know you are snared when you Feel it: - then mind will turn around and start calling you an idiot, instead of everyone else. Mind is no one's friend. The world is awash with it.

It’s interesting that one of the most common things for people to exclaim when they first go inside to get in touch with the self, is: ’Oh, I never knew what my mind was, until I began to practice ...’

For the first time they see their own mind as if from a distant vantage point: - as something substantial, real, tangible, yet external to them that is almost alive, all by itself; thoughts appearing over some distant horizon and disappearing over another, sometimes barely within their content or contextual management. Sometimes there is a whole ‘raincloud of thoughts’ (stormcloud) that has a life of its own and the viewer is captured by the thoughts that billow there, prisoner rather than architect. They cannot tell. Going inside, people begin to notice that mind has much in common with other minds; and much that is unique. The idea of a universal mind (just as there is universal matter) of which we utilise a drop, becomes not so strange.

Mind has its own nature and very few people get to observe it for what it is. Most are embedded in it, caught up in it and tossed around; - a lot of people think they are their mind. Most of the time, thoughts occur in a sea of emotion over which the thinker has even less control (kama-manas). Most of the thought of most of the people on the planet is actually emotionally driven – thought is used as leverage in order to achieve emotional fulfilment. The quest for world domination by the micc for example, is a rather primitive emotional quest. There is no pure thought in it that is noble or logical; emotionally based desire, folly, and greed rules.

Within the mind is the intellectual faculty which is at different degrees of development in each person. Also within the mind is the ‘I’ – the current identity or ID that the person believes themselves to be. It is literally, a ‘wave in the mind-stuff’. Another common trait among people who have learnt how to go inside is that the true self is felt, then seen, recognised, and its essence uncovered: - this breaks the link to the ‘I’ and it begins to dissipate, no longer being necessary to the expanding consciousness. Clarity ensues.

The ‘I’ can be thought of as the synthesis of the physical, emotional and mental nature, developing under evolutionary energies. The persona or ‘I’ is a synthesis of forces; the self, a duality of energy.

The ‘I’ may be engrossed with physical forces and the physical world. Most are caught up in the illusion of emotional gratification. People who use the intellect struggle to subdue these forces (planes) and erect applied logical systems. Kindness and generosity come from the self and influence the whole. In the same way the absence of a candle from a room leaves the room in darkness, the absence of the self leaves the mind. Ignorance is ignoring what makes you human. There is a lot of ignorance in this world.

But in the period that the ‘I’ is in command of the personality then Its nature controls, and this is what most people do not understand - synthetic outcomes. Everyone is obsessed with concepts with emotional emphasis. The ‘I’ may be caught up in physical, emotional, or mental forces; it is usually selfish and self centred, seeking glory or recognition for itself. It will gladly sacrifice others to its pursuits. It is childish in this state. As the self grows in influence, the ‘I’ becomes kinder, more considerate and inclusive. The thoughts, mental nature and emotional states change and develop correspondingly. Finally the ‘I becomes an aspirant and desire is now one-pointed. All of these forces war in man. The world is a mirror of this war – our Kurukshetra.

jrbarch said...

A man can no more be a ‘scientist’ thinking pure selfless logical thoughts – as he can walk around on one hand. We are an integrated being. All aspects of the personality must come under the complete control of the self, eventually usurping the control of the ‘I’. The ‘I’ is like an evolutionary appendage, necessary only through one stage. It fights the self for control. One consciousness embraces all aspects of man’s career: - political, religious and economic to use broad categories (Will, Love~Wisdom, Intelligence).

When the self begins to make its presence felt, the ‘I’ and the lower nature transform once again. People that know the self are some of the kindest, happiest, and more considerate and inclusive people on the planet. When the self is known, the ‘I’ becomes slowly redundant. When the self, repeating the process on higher levels is similarly deposed, a Master emerges from the ranks of men, and the conduit to the persona is direct.

For me this is life, even though I know most people have no clue these processes are afoot.

Even the intellectuals, if they want to know the origin of the universe, the essence of an atom and all the rest of it, will have to bow their heads one day, and humbly knock on the door of the heart. The greatest frontier for man is inside. The greatest challenge for mankind is peace. Man cannot live by bread alone ....

When they want to.

jrbarch said...

...afterthought for easter: - a master (teacher) is recognised, long before mind has a clue.