When is a DSGE model 'ok' to be used for policy analysis

General DSGE Modeling
1

In modern macroeconomics, empirical models like VAR models can be used as a selection criterion to judge between two or more competing theoretical-based models like DSGE models. Gali (2015) does that in his book. Some of his DSGE models in the book are able to generate the empirical results shown in chapter 1, but only in a qualitative sense (not quantitatively).

Can such DSGE models still be used for policy analysis? I mean, it does a good job qualitatively but does a poor job quantitatively. Such models are still useful, right?

2

It always depends on what you are using them for. You would not use such a model for determining the quantitative size of a policy intervention. But they may be OK for thinking through the qualitative effects of policy interventions.

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