This study explores three alternative econometric interpretations of dynamic, stochastic general equilibrium (DSGE) models. (1) A strong econometric interpretation takes the model literally and directly produces a likelihood function for observed prices and quantities. It is widely recognized that under this interpretation, most DSGE models are rejected using classical econometrics and assigned...

The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies. This papers describes this transformation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods. In particular by treating DSGE m...

Abstract Exchange rates have raised the ire of economists for more than 20 years. A problem is that there appears to be no exchange rate model that systematically beats a naive random walk in out of sample forecasts. Economists also find it irksome that theoretical models are unable to explain short-, medium-, and long-run exchange rate movements. Engel and West (2005) show that these failures ...