The RBC vote
In 1983, Long and Plosser introduced the term "real business cycles"
(RBC) just after Kydland and Prescott published their time-to-build paper.
RBC stuck and has become the acronym for a methodology that is now
applied to models that have nothing real and may not even be about real
In the first issue of the EconomicDynamics Newsletter,
Backus suggested that a vote should be taken to decide on a new
and more appropriate acronym. Well, time has come to do exactly that. I
have gathered some suggestions from prominent users of this theory and
people that have helped shape it. Here they are, with some arguments to
help you make a choice.
The object of the vote
The acronym should represent the methodology whereby economic issues are
addressed with dynamic general equilibrium models that are calibrated (or
sometimes estimated) in order to obtain quantitative results and/or
compute welfare measures. Feel free to differ on this definition.
- Applied Equilibrium Dynamics - AED
- Dynamic General Equilibrium Model - DGE
- Kydland Prescott Model - KPM
- Quantitative Equilibrium Dynamics - QED
- Real Business Cycle Theory - RBC
- Stochastic CAlibrated Dynamic General Equilibrium - SCADGE
- Serious Equilibrium Models - SE
- Edward Prescott, University of Minnesota
- Long and Plosser introduced the term real business cycles to
cycles induced by real factors from cycles induced by nominal factors and
by financial crises. This I think is good language for this distinction.
The term real business cycles has come to have a much broader meaning and I
agree with David Backus that a an acronym is needed for the development you
describe in your email. The key concepts are quantitative or applied,
dynamic, and general equilibrium. This suggests Quantitative Equilibrium
Dynamics (QED) or Applied Economic Dynamics (AED).
- Julio Rotemberg, Harvard University
- SCADGE (pronounced as a one syllable word) stands for Stochastic
CAlibrated Dynamic General Equilibrium and these
are, to me, the key five words that describe these models. There are many
varieties of dynamic general equilibrium models out there (including
models, of course) and it seems important to distinguish these from the
others. Calibration is not the only distinguishing feature, however, as
this is done also in the fairly vast literature that calls itslef CGE (or
Computational General Equilibrium). What separates this from that is the
explicit analysis of second moments, and that is why I put in the S.
- Randall Wright, University of Pennsylvania
- I sort of like "the DGE model". Although "the Kydland-Prescott Model"
(KPM) is even better -- it's accurate and fair.
- David Backus, New York University
- I agree with Randy: DGE.
- Timothy Kehoe, University of Minnesota
- I vote for dynamic general equilibrium (although I like "applied").
- Patrick Kehoe, Federal Reserve Bank of Minneapolis
- I like DGE but you have to admit that it sounds a little nerdy. If we
could get away with it, I would prefer SE for Serious Equilibrium models,
but it is not clear this this term will fly.
The problem with AED or ADE is that it brings to mind the work on
General Equilibrium models by the old group at the World Bank that was not
- Michael Woodford, Princeton University
- DGE models.
QED is fine (even better than DGE models) as a way of referring to the
literature as a whole. For example, there could be a web page for 'QED',
a review article might discuss developments in 'QED', and so on. But it
isn't a good term for an individual model: iit would be very awkward to
write a paper that begins "I construct an open-economy QED model..." So
instead one needs the term 'DGE model' to refer to an individual
example. This makes it the better term.
A couple of interesting suggestions:
- Rather Be Calibrating - RBC (Peter Summers)
- Intertemporal Stochastic Laboratory Models (Franck Portier)
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