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Does evidence challenge the DSGE model

Author

Listed:
  • Tanya ARAUJO

    (ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal)

  • Sofia TERLICA

    (Banco de Portugal)

  • Samuel ELEUTERIO

    (Instituto Superior Técnico, University of Lisbon Av. Rovisco Pais 1049-001 Lisboa, Portugal)

  • Francisco LOUCA

    (ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal)

Abstract

DSGE are for a time the favorite models in the simulation of monetary policies at the central banks. Two of its basic assumptions are discussed in this paper: (a) the absence of endogenous nonlinearities and the exogenous nature of shocks and (b) the persistence of or the return to equilibrium after a shock, or the absence of dynamics. Our analysis of complex financial markets, using historical data of S&P500, suggests otherwise that financial regimes endogenously change and that equilibrium is an artifact.

Suggested Citation

  • Tanya ARAUJO & Sofia TERLICA & Samuel ELEUTERIO & Francisco LOUCA, 2014. "Does evidence challenge the DSGE model," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 2(2), pages 15-24, December.
    • Handle: RePEc:jek:journl:v:2:y:2014:i:2:p:15-24
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market Crises; Stochastic Geometry; Efficient Market Hypothesis; General Equilibrium; Financial Markets;
    All these keywords.

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other

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