When Policy Makers believe in Fiction
Today, we are 10 years into what economists call the “Global Financial Crisis” (“GFC”). Despite the severity of the economic and financial market disruptions and the enormous social costs, economic teaching and research have, mostly, defended the continued use of large-scale macroeconomic models, often referred to as Dynamic Stochastic General Equilibrium models (“DSGE”).My project at the CPNSS explores three topics related to the structure, interpretation and use of DSGE models, i.e. (1) the micro-foundation, (2) the use of mathematics, and (3) the narratives or stories that such models tell. I intend to let the two first topics frame the, more important, third topic. I argue these narratives are fictional in character and question policy decisions made on such basis. The working title of the final paper is “When Policy Makers believe in Fiction”.