Monday, October 10, 2016

The S in DSGE

Stocastic ?

No never
This is a proxy at best

A proxy for a deterministic system of great complexity

So what about it ?

Well in the absence of a random shock generator

To account for the flux
We explore endogenous episodes
And extraordinary  interactions

Ie a historical process with "perfect storms"  on occasion

And yet there's more
Because the system has its amplifiers and dampeners

Minsky credit bust  moments fisher debt jacket spirals
Bank runs   rational asset bubbles and the like

All episodic all determined micro nominally
 ---- like the tumble of dice  ----
but " built in "  NOT shocks