THE “CORE”—THE DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM APPROACH.

“THE CORE”—THE DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM APPROACH. Caballero describes the core of current macroeconomics as the construction of dynamic stochastic general equilibrium models (Kids, you can treat “dynamic” as referring to changes over time, “stochastic” as referring to the incorporation of probabilities, and “general equilibrium” as referring to the incorporation of most economic variables.) The approach is extraordinarily ambitious, and, says Caballero, “attractive…even plain addictive….” Caballero says that: “The research departments of central banks around the world have become even more obsessed than academics with this agenda [of the core].” He expresses the concern that the core “has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one.”