Title: The scientific foundation of dynamic stochastic general equilibrium (DSGE) models
Authors: De Grauwe, Paul # ×
Issue Date: 2010
Publisher: Kluwer Academic Publishers
Series Title: Public Choice vol:144 pages:413-443
Abstract: DSGE-models provide a coherent framework of analysis. This coherence is
brought about by restricting acceptable behavior of agents to dynamic utility maximization
and rational expectations. The problem of the DSGE-models (and more generally of
macroeconomic models based on rational expectations) is that they assume extraordinary
cognitive capabilities of individual agents. In addition, these models need a lot of ad-hoc
assumptions to make them fit the data. I argue that we need models that take into account
the limited cognitive abilities of agents. One can introduce rationality in such models by
assuming “trial and error“ learning. I propose such a model and I analyze its implications.
ISSN: 0048-5829
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics, Leuven
× corresponding author
# (joint) last author

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