Recent Developments in Macroeconomics: The DSGE Approach to Business Cycle in Perspective
John Davis and Wade Hands (eds.), "The Elgar Companion to Recent Economic Methodology," pp. 375-403
Posted: 27 Jan 2011 Last revised: 4 Feb 2017
Date Written: December 6, 2010
I survey the so-called "new neoclassical synthesis" literature (that emerged allegedly as a synthesis between the real business cycle and the new Keynesian literatures) and its ubiquitous dynamic stochastic general equilibrium (DGSE) model, emphasizing the current practices in it. This includes presenting a toy model and showing what kind of dynamics among aggregate variables it produces, and the reverse-engineering strategy that mainstream macroeconomists use to enrich the dynamics of their models. I finally ponder such current practices and the criticisms brought by the recent crisis, venturing to explore future prospects.
Keywords: New Neoclassical Synthesis, DSGE Models, Monetary Economics, Microfoundations
JEL Classification: E40, E32, B22, B41
Suggested Citation: Suggested Citation