Must-Read: Wolfgang Münchau: Macroeconomists Need New Tools to Challenge Consensus

…is not something that you can easily square with the current generation of macroeconomic theories and models…. The advent of chronic instability…. The present tools used by mainstream macroeconomists cannot deal with this adequately. New ones are needed. They exist in other disciplines, but to macroeconomists they look as weird today as the abstract stuff looked to mathematicians of the 19th century. For the moment, the traditionalists still rule. They managed to go beyond the ideological turf wars of the 20th century, by taking a leap towards a new generation of economic models that were technically complex–in the sense of 19th century mathematics…. The so-called dynamic stochastic general equilibrium (DSGE) models were…just not able to deal with the shocks we eventually got…. The modern models have at least three questionable features… a single macroeconomic equilibrium… linearity….. Few of these criticisms left a lasting impression on the profession. The mainstream invested a life’s work in developing their DSGE models. They will not let go easily…. My hunch is that, unlike in mathematics, the successful challenge will come from outside the discipline, and that it will be brutal.