According to Spanos 2014 Revisiting Haavelmo's Structural econometrics: Bridging the gap between theory and data Dynamic Stochastic General Equilibrium models are statistically inadequate, in such an order of magnitude as to render them useless.

The most serious problem with DSGE models is that they are often statistically inadequate. Advocates of DSGE modeling, however, have put forward a number of arguments to explain away the unreliability of their evidence, such as ‘the price one has to pay for rigorous and policy-relevant theoretical models’ (Lucas, 1980, p. 696), or simply inevitable: “The models constructed within this theoretical framework are necessarily highly abstract. Consequently, they are necessarily false, and statistical hypothesis testing will reject them. This does not imply, however, that nothing can be learned from such quantitative theoretical exercises.” (Prescott, 1986, p. 10)

Part of my research involves using a partial equilibrium models to simulate a particular segment of an economy.

Considering the above, I would like to illustrate failure of a partial equilibrium model. What methods would you use to show that a given equilibrium model is statistically unreliable?

  • $\begingroup$ This looks like it might belong on economics.stackexchange.com. $\endgroup$ – jmbejara Feb 13 '15 at 3:34
  • $\begingroup$ Thanks for the advice, I have added this question there:economics.stackexchange.com/questions/3365/… I don't know how to close a question here. So I keep if for the record. $\endgroup$ – Paul Rougieux Feb 13 '15 at 8:43
  • $\begingroup$ Hi Paul4forest, welcome to Quant.SE! I believe this question could have been on-topic here but since we tryh to keep questions unique across the StackExchange network I'm going to close it here. In the future you can request a migration and the question can then be moved by a moderator such as me. $\endgroup$ – Bob Jansen Feb 13 '15 at 12:39
  • $\begingroup$ I'm voting to close this question as off-topic because this question has been cross posted to economics. $\endgroup$ – Bob Jansen Feb 13 '15 at 12:40
  • $\begingroup$ Alright I didn't know migration was possible. Thanks. $\endgroup$ – Paul Rougieux Feb 13 '15 at 15:43