This document summarizes a working paper from the MIT Department of Economics. The paper argues that modern macroeconomics, particularly dynamic stochastic general equilibrium (DSGE) models, have become overconfident in their ability to precisely model the real world economy. While DSGE models achieve precision internally, they lack precision in modeling complex real-world phenomena. The paper calls for macroeconomics to shift from "fine-tuning" DSGE models to broadly exploring alternative approaches at the "periphery" of the field that provide qualitative rather than quantitative insights. It also argues macroeconomics should explicitly model the limited knowledge of economic agents and researchers to develop robust tools and policies given substantial uncertainty.

Massachusetts Institute of Technology Department of Economics Working Paper Series PDF

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