I confess. I don’t get Gordon’s critique of modern macro.
Questions for Prof. Gordon:
- If you think other things should be modeled, like volatile investment, why don’t you add them to the model?
- Why should we scrap a modelling technique because you don’t think the right things were modeled? We don’t throw out hammers because they haven’t built the tallest building.
- Did you know that DSGE models were the battle field for a discussion on how forward/backward inflation expectations are?
- Did you know Cambell and Mankiw’s dumb agents have been incorporated into DSGE models? Also, many of the other “missing” features of DSGE you mention have actually been incorporated into that framework.
- Shouldn’t we reject models because they can’t reproduce important features of the data, NOT because they don’t tell satisfying stories?
- What features of the data do ALL models written in the DSGE framework fail to replicate?
He notes “much of Keynesian economics and what I call here “1978‐era macroeconomics” was designed to explain the set of impulses and propagation mechanisms that created and amplified the Great Depression”. I don’t get why we should develop a science around explaining one (or two) data points.