Complete and Incomplete Econometric Models

By John Geweke | Go to book overview

4
Incomplete Structural Models

The dynamic stochastic general equilibrium (DSGE) model has become a central analytical tool in studying aspects of economic behavior in which aggregate uncertainty is important. Models in this family abstract sufficiently from measured economic behavior that clarification of the dimensions of reality they are intended to mimic is important. This clarification is essential if these models are to deepen our understanding of real economies. If the relation between DSGE models and measured economic behavior can be made formal, explicit, and simple, then the analytic power of this approach and the understanding of economic behavior will be enhanced. This chapter explores such a characterization of the relation between DSGE models and measured economic behavior.

The approach taken here is to examine three alternative interpretations of the relationship. The first, called the strong econometric interpretation, leads to complete econometric models. It is widely understood that DSGE models fare badly under this interpretation, and the DSGE literature consistently disavows its appropriateness given the level of abstraction in the models. The second, called the weak econometric interpretation, greatly reduces the dimensions of observed behavior that a DSGE model is designed to

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Complete and Incomplete Econometric Models
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Series Editors' Introduction vii
  • Preface ix
  • 1: Introduction 1
  • 2: The Bayesian Paradigm 7
  • 3: Prior Predictive Analysis and Model Evaluation 34
  • 4: Incomplete Structural Models 86
  • 5: An Incomplete Model Space 122
  • References 161
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