Rejoinder to Perspectival representation in DSGE models by Paweł Kawalec

All dominant paradigms attract criticism. Therefore, it comes as no surprise that, after DSGE models emerged as a workhorse tool for macroeconomic analysis in both academic and policy-making circles, their assumptions and implications have met (sometimes severe) opposition. This kind of discussion is usually healthy, especially when it involves well-established scholars who have a good understanding of the mainstream literature. The critique usually comes in two genres. If expressed by insiders (e.g. Blanchard, 2016), it usually calls for refinement of the existing framework, without a heavy damage to its core, and the chances that the proposed ideas will make some impact are high. In contrast, attacks launched from the outside usually dismiss the founding concepts and, especially if no clear alternative is offered, tend to instigate shortlived outrage from their supporters, but then are largely ignored. The critique of Romer (2016) is of the second type. It is also packed with attacks that look personal or even insulting to his opponents, suggesting i.a. that they are involved in some form of unfair collusion that puts personal interest or group loyalty before progress of science. Therefore, it is tempting to dump it altogether, which would be wrong, given that some points raised by Romer are serious and deserve a deeper thought. This is why I think that the defense of DSGE models offered by Paweł Kawalec, who concentrates on philosophical lines of Romer’s critique, is very useful and worth reading. In this short rejoinder I am going to share my own views on the current stance and prospects for DSGE models, drawing from my experience as a researcher and central bank economist. It is useful to start from a proposition that DSGE models are a compromise between rigorous academic research and policy makers’ pragmatism. The former favors relatively small models, where key mechanisms can be clearly understood. The structure ideally includes only those ingredients that are necessary for exposing these mechanisms, and its