Wouter den Haan on the state of modern macro

This Wednesday, my advisor Wouter den Haan gave a public lecture at the LSE titled "Is Everything You Hear About Macroeconomics True?". It was very stimulating. While I disagreed on some points (on which possibly more later), I was impressed by the earnesty with which he criticised the profession and his own work, and at the same time sharply drew the line to unwarranted criticism often heard from journalists and politicans.

Excerpt:

Often we get accused of not being open to alternative approaches. I think that's somewhat true. I think people are always somewhat defensive of things which are new. Especially things that are going to threaten your human capital. If you put a lot of effort into building up this human capital to be able to work with these mathematical [DSGE] models, you're not that happy if the new guy says: "No, let's do it another way." But I also think that these alternative approaches would get a lot more attention if they used the same language as the dominant paradigm (for example things like "efficient markets") and if they also understood better what the challenges are.

In particular, the challenges are not so much to generate a crash - our models can do that, too - or to generate volatile asset prices, or to have models that are better than these protoypes [RBC and New-Keynesian models]. The hard part is, if you discipline yourself by choosing parameters, to then get interesting action. There is a bunch of PhD students here, and they know that the hardest part is not to have an idea. The hardest part is to have an idea that is actually going to be quantitatively important if you discipline yourself in choosing things like preferences, technology and market structure.

You can listen to the whole thing here and also download the slides.