In an economic system, agents are human beings with heterogenic behavioral dispositions. Although agent behavior tends to be rational, and the systems behavior reflects the collective behavioral representation of these agents, at the microeconomic level, it is however, difficult to completely rationalize and predict behavior of individual agents as also, to understand how these affect at the aggregate level. The problem is perhaps with the modeling of agent's behavior with respect to their interaction with the environment.

Limits of DSGE Model:

The primary essential feature of the ‘Dynamic Stochastic General Equilibrium’ (DSGE) model which is the relation between micro and macro structure is based on ‘Walrasian microfoundation’ way back in the 1870’s. Throughout the 1990’s, most of the important research and developments in macroeconomic engineering were based on modeling system’s behavior built on aggregate level. However, still, this does not solve the problem of how microeconomic agents’ behavior generates the dynamics at the macroeconomic level.

Dear Paula,

Certainly.

You may wish to go through this particular paper. If you are modeling agent behavior, then perhaps some papers below may be of some help to you.

https://papyrus.bib.umontreal.ca/jspui/bitstream/1866/512/1/2003-23.pdf

Some others: On Bayesian analysis

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=324964

These are also good papers but i do not have access right now to these from my lappy.

Methods to estimate dynamicstochasticgeneralequilibrium models:

http://dx.doi.org/10.1016/j.jedc.2006.09.005

Evaluation of dynamic stochastic general equilibrium models based on distributional comparison of simulated and historical data.

http://dx.doi.org/10.1016/j.jeconom.2005.11.010.

Thanks for asking,

Sincerely,

Sidharta

Hi Paula,

Its my pleasure i'm glad that i was of some help to you.

always welcome,

Sincerely,

Sidharta