Not More So: Some Concepts Outside the DSGE Framework

Abstract

The first part of this paper shows how policy advices based on the standard dynamic stochastic general equilibrium (DSGE) framework were ineffective when significant degree of uncertainty surrounds consequences of alternative choices, and when, as the DSGE framework does, combinatorial aspects or effects of agents forming clusters of alternative choices, that is entropy effects, are ignored. In a shorter second section we mention a few other concepts outside the mainstream macroeconomics that are important to more realisitic modeling of macroeconomy, and yet missing in the DSGE models, such as random partitions of agents into clusters, distributions of sizes of clusters, ultrametrics to measure distances between clussters, and evolutionary aspects of dynamics, that is entries by new types of agents or goods.