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Does Evidence Challenge the Dsge Model?


Affiliations
1 ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal
2 Banco de Portugal, Portugal
3 Instituto Superior Tecnico, University of Lisbon Av. Rovisco Pais 1049-001 Lisboa, Portugal
 

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 non-linearities 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.

Keywords

Market Crises, Stochastic Geometry, Efficient Market Hypothesis, General Equilibrium, Financial Markets.
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  • Does Evidence Challenge the Dsge Model?

Abstract Views: 529  |  PDF Views: 199

Authors

Tanya Araujo
ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal
Sofia Terlica
Banco de Portugal, Portugal
Samuel Eleuterio
Instituto Superior Tecnico, University of Lisbon Av. Rovisco Pais 1049-001 Lisboa, Portugal
Francisco Louca
ISEG, University of Lisbon and UECE, R. Miguel Lupi 20, 1249-078 Lisboa, Portugal

Abstract


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 non-linearities 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.

Keywords


Market Crises, Stochastic Geometry, Efficient Market Hypothesis, General Equilibrium, Financial Markets.

References





DOI: https://doi.org/10.15759/ijek%2F2014%2Fv2i2%2F60786