ea14, what kind of taxes are we talking about? permanent or temporary? Do you have a reference for the type of experiment you're describing?
To log-linearize or not to log-linearize? | EL
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Wow, an EJMR thread I can actually learn from! 38ee good.
I've personally been skeptical of the Christiano-Eichenbaum research agenda for a while, but not because of some nuance of log-linearization. There are a lot of meaningful questions to be raised about the new-keynesian framework that deal directly with the macroeconomics we are supposed to be using them to learn about. For instance, wtf IS any particular shock representing? When we "identify" the parameters associated with these shocks, are we identifying something meaningful, or just picking up information from some other important economic phenomenon that we should have in the model? And, to the heart of the problems in the DSGE framework, is aggregation covering up any meaningful economic behavior that will make a representative agent model give a false impression of what equilibrium should look like?Every structural macroeconomist knows that the interpretation of the parameters of your model is only as solid as the extent that you believe in the assumptions of the model. Further, I don't think anyone would claim that we shouldn't look at heterogeneity, aggregation issues, better microfoundations for shocks, etc. But that doesn't mean that C and E's approach is any less informative. I read those papers, with their many shocks, as a "semi-reduced form" for the next crop of fine-grained structural models just as the early VAR papers informed the early DSGE agenda.
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The physicists would laugh themselves silly if they knew what macro economists argue about
And they would go home and cry because we're richer, smarter, and better looking than they are.Economists to Finance people: LOL at you sellouts. We care about more than just money. We want to research topics that we find interesting and not have to deal with B-school douche bags.
Physicists to Economists: LOL at you sellouts. We care about more than just money. We want to research topics that we find interesting and not have to deal with pseudo science.
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> If log-linearizing DSGE models is macro voodoo the what does that say about guys like Eggertsson who pretty much make their fat putting together these log-linearized DSGE models?
Log-linearizing isn't voodoo; it's perfectly adequate for answering some macro questions.
Unfortunately it's pretty awful at answering some of the big questions we face right now: those regarding zero-lower-bounds, debt limits, occasionally-binding credit constraints, etc.