The paper “Is Modern Macro or 1978-era Macro More relevant to the understanding of the current Economic Crisis?”, by Robert J. Gordon (Northwestern University, NBER, CEPR) , provides a fundamental critique of Dynamic Stochastic General Equilibrium models and the related core assumptions of modern business cycle macroeconomics. He concludes: “.. the paper goes beyond most recente account of the worldwide economic crisis by pointing out numerous similarities between the levarage cycles of 1927-29 and 2003-06, particularly parallel regulatory failings in both episodes, and it links tightly the emprical lack of realis in the demand and supply sides of modern DSBGE models with the empirical reality that has long been built into the 1978-era paradigm resurrected here”
See: http://faculty-web.at.northwestern.edu/economics/gordon/GRU_Combined_090909.pdf
