Abstract

http://ssrn.com/abstract=1683617
 
 

References (56)



 
 

Citations (16)



 


 



Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome


Ricardo J. Caballero


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

September 27, 2010

MIT Department of Economics Working Paper No. 10-16

Abstract:     
In this paper I argue that the current core of macroeconomics - by which I mainly mean the so-called dynamic stochastic general equilibrium approach - has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in “fine-tuning” mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in “broad-exploration” mode. We are too far from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.

Number of Pages in PDF File: 23

Keywords: Pretense of knowledge, DSGE, core and periphery of macroeconomics, financial crisis, complexity, robust control, uncertainty, rational expectations

JEL Classification: A1, B4, E1, G01

working papers series


Download This Paper

Date posted: September 27, 2010 ; Last revised: October 10, 2010

Suggested Citation

Caballero, Ricardo J., Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome (September 27, 2010). MIT Department of Economics Working Paper No. 10-16. Available at SSRN: http://ssrn.com/abstract=1683617 or http://dx.doi.org/10.2139/ssrn.1683617

Contact Information

Ricardo J. Caballero (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
E52-252A
Cambridge, MA 02142
United States
617-253-0489 (Phone)
617-253-1330 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 17,828
Downloads: 5,030
Download Rank: 665
References:  56
Citations:  16

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.312 seconds