The future of macroeconomics: macro theory and models at the Bank of England
The adoption as policy models by central banks of representative agent New Keynesian dynamic stochastic general equilibrium models has been widely criticised, including for their simplistic micro-foundations. At the Bank of England, the previous generation of policy models is seen in its 1999 medium...
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| Format: | Journal article |
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Oxford University Press
2018
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| _version_ | 1797052410427867136 |
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| author | Hendry, D Muellbauer, J |
| author_facet | Hendry, D Muellbauer, J |
| author_sort | Hendry, D |
| collection | OXFORD |
| description | The adoption as policy models by central banks of representative agent New Keynesian dynamic stochastic general equilibrium models has been widely criticised, including for their simplistic micro-foundations. At the Bank of England, the previous generation of policy models is seen in its 1999 medium-term macro model (MTMM). Instead of improving that model to correct its considerable flaws, many shared by other non-DSGE policy models such as the Federal Reserve’s FRB/US, it was replaced in 2004 by the DSGE-based BEQM. Though this clearly failed during and after the global financial crisis, it was replaced in 2011 by the DSGE COMPASS, complemented by a ‘suite of models’. We provide a general critique of DSGE models for explaining, forecasting and policy analyses at central banks, and suggest new directions for improving current empirical macroeconomic models based on empirical modelling broadly consistent with better theory, rather than seeking to impose simplistic and unrealistic theory. |
| first_indexed | 2024-03-06T18:31:14Z |
| format | Journal article |
| id | oxford-uuid:09b6fda7-1fe2-46fb-97fc-449b10c78bbb |
| institution | University of Oxford |
| last_indexed | 2024-03-06T18:31:14Z |
| publishDate | 2018 |
| publisher | Oxford University Press |
| record_format | dspace |
| spelling | oxford-uuid:09b6fda7-1fe2-46fb-97fc-449b10c78bbb2022-03-26T09:19:54ZThe future of macroeconomics: macro theory and models at the Bank of EnglandJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:09b6fda7-1fe2-46fb-97fc-449b10c78bbbSymplectic Elements at OxfordOxford University Press2018Hendry, DMuellbauer, JThe adoption as policy models by central banks of representative agent New Keynesian dynamic stochastic general equilibrium models has been widely criticised, including for their simplistic micro-foundations. At the Bank of England, the previous generation of policy models is seen in its 1999 medium-term macro model (MTMM). Instead of improving that model to correct its considerable flaws, many shared by other non-DSGE policy models such as the Federal Reserve’s FRB/US, it was replaced in 2004 by the DSGE-based BEQM. Though this clearly failed during and after the global financial crisis, it was replaced in 2011 by the DSGE COMPASS, complemented by a ‘suite of models’. We provide a general critique of DSGE models for explaining, forecasting and policy analyses at central banks, and suggest new directions for improving current empirical macroeconomic models based on empirical modelling broadly consistent with better theory, rather than seeking to impose simplistic and unrealistic theory. |
| spellingShingle | Hendry, D Muellbauer, J The future of macroeconomics: macro theory and models at the Bank of England |
| title | The future of macroeconomics: macro theory and models at the Bank of England |
| title_full | The future of macroeconomics: macro theory and models at the Bank of England |
| title_fullStr | The future of macroeconomics: macro theory and models at the Bank of England |
| title_full_unstemmed | The future of macroeconomics: macro theory and models at the Bank of England |
| title_short | The future of macroeconomics: macro theory and models at the Bank of England |
| title_sort | future of macroeconomics macro theory and models at the bank of england |
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