New York Fed paper launches DSGE defence


A new Federal Reserve Bank of New York staff paper, published yesterday, defends the ability of dynamic stochastic general equilibrium (DSGE) models to account for economic developments following the latest financial crisis.

The paper – Inflation in the Great Recession and New Keynesian Models, by Marco Del Negro, Marc Giannoni and Frank Schorfheide – tests the ability of a standard DSGE model (available in 2008) to explain the behaviour of key macroeconomic variables since the crisis.

It finds

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