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


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.