Open AccessDoes evidence challenge the DSGE model?
Author(s) -
Tanya Araújo,
Sofia Terlica,
Samuel Eleutério,
Francisco Louçã
Publication year - 2014
Publication title -
international journal of entrepreneurial knowledge
Language(s) - English
Resource type - Journals
eISSN - 2336-2952
pISSN - 2336-2960
DOI - 10.37335/ijek.v2i2.18
Subject(s) - dynamic stochastic general equilibrium , economics , shock (circulatory) , general equilibrium theory , econometrics , monetary policy , financial market , persistence (discontinuity) , monetary economics , macroeconomics , finance , medicine , geotechnical engineering , engineering
DSGE are for a time the favorite models in the simulation of monetary policies at the central banks. Two of its basic assumptions are discussed in this paper: (a) the absence of endogenous nonlinearities and the exogenous nature of shocks and (b) the persistence of or the return to equilibrium after a shock, or the absence of dynamics. Our analysis of complex financial markets, using historical data of S&P500, suggests otherwise that financial regimes endogenously change and that equilibrium is an artifact.