Publish and Perish: Creative Destruction and Macroeconomic Theory

Jean-Bernard Chatelain (PSE); Kirsten Ralf

REVIEW 2 major objections 6 minor 6 references

Publish and Perish: Creative Destruction and Macroeconomic Theory

T0 review · 2 major / 6 minor · reviewed 2026-08-14 · deepseek-v4-flash

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Pith's one-line read Macro data cannot settle which theory is right: the leading models are observationally equivalent.

desk verdict A provocative, clearly written methodological critique of DSGE macroeconomics whose formal examples are sound but whose universal 'data can never settle it' claim overreaches Pesaran's theorem; worth peer review, not a desk reject. read the letter →

arxiv 1908.10680 v1 pith:AERP4RAI submitted 2019-08-19 econ.GN q-fin.EC

Jean-Bernard Chatelain (PSE) , Kirsten Ralf This is my paper · ORCID

classification econ.GNq-fin.EC

keywords macroeconomictheoryDSGEmodelsobservationalequivalenceparameteridentificationeconomicgrowthconvergenceinflationpersistencecreativedestruction

verification ladder T0 review T1 audit T2 compute T3 formal

The pith

A machine-rendered reading of the paper's core claim, the machinery that carries it, and where it could break.

The reading

This paper argues that the eclipse of 1980s macroeconomic theories by dynamic stochastic general equilibrium (DSGE) models was not an empirical victory: data could not settle the dispute, and the paper says no data ever will. The reason is observational equivalence, the fact that a rational-expectations DSGE model and a simpler adaptive-expectations statistical model can be written to produce the same predictions, plus persistent under-identification of structural parameters. Two examples carry the argument: the cross-country convergence regression cannot separate the curvature of utility from the curvature of production, and the New-Keynesian Phillips curve cannot separate intrinsic inflation persistence from serial correlation in shocks. The paper concludes that DSGE dominance is a social and institutional outcome—a negotiated combination of assumptions that were previously treated as incompatible—and that macroeconomics is therefore not yet a cumulative science.

What carries the argument

The workhorse is observational equivalence: the theorem that, without a priori restrictions on the processes generating exogenous variables and disturbances, a rational-expectations model and an adaptive-expectations distributed-lag model will fit the same data and cannot be told apart. In the paper's examples this equivalence bites at the level of reduced-form parameters—the convergence coefficient is the same weighted combination of four technology parameters (Solow) or six technology-and-preference parameters (optimal growth), and the inflation autocorrelation cannot separate the effect of lagged inflation from the effect of an autocorrelated shock. The mechanism shows why microfoundations do not rescue the DSGE model: they add structural parameters without adding identifying information, making weak identification and non-identification opaque rather than absent.

What would settle it

Estimate a specific New-Keynesian DSGE model and its adaptive-expectations VAR counterpart on the same data with identifying restrictions derived from the microfoundations, then compare their out-of-sample forecasts and likelihoods. If one model is decisively rejected while the other survives across multiple datasets, or if a preference parameter such as the intertemporal elasticity of substitution is locally identified from macro data without prior restrictions, the general observational-equivalence claim would be broken.

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Extended reading notes

Core claim

The paper's central claim is that the New-Keynesian DSGE model, which replaced monetarism, real business cycle theory, disequilibrium models and non-optimizing rational-expectations models, is a 'bargain' among leading macroeconomists rather than a 'settlement by nature.' It combines five previously separate components: exogenous autocorrelated shocks, staggered price setting, optimal-saving microfoundations, an interest-rate policy rule responding to inflation and output, and a forward-looking solution condition. Because of observational equivalence, any such rational-expectations model has a counterpart adaptive-expectations VAR that cannot be distinguished empirically, and the structural parameters that would give the model its economic meaning are frequently not identified. The paper demonstrates this for growth convergence and inflation persistence, and concludes that the controversy between rational and adaptive expectations, and between rival macro theories more generally, cannot be resolved by additional data.

Load-bearing premise

The load-bearing premise is that the observational-equivalence theorem applies to the DSGE models actually estimated—meaning that no informative restrictions are placed on how exogenous variables and disturbances evolve; if real estimated models do impose such restrictions, data could in principle discriminate between rational and adaptive expectations.

Editorial extensions

If this is right

Data cannot settle the rational-versus-adaptive expectations debate, because the two families of models can be specified to produce identical observations.
Convergence regressions cannot distinguish exogenous-saving growth models from optimal-saving growth models, since the same estimated convergence speed is consistent with many technology-preference pairs.
New-Keynesian estimates of inflation persistence are not evidence for intrinsic persistence: a hybrid Phillips curve with a serial-correlated shock is observationally equivalent to a simpler two-lag adaptive model.
The DSGE takeover is explained by a negotiated recombination of assumptions and by institutional research incentives, not by superior empirical performance.
If the paper's forecast is right, the New-Keynesian consensus will undergo a similar creative destruction, and the underlying controversies will remain unresolved.

Reading between the lines

Editorial extensions of the paper, not claims the author makes directly.

Taken further, the equivalence argument implies that monetary policy conclusions drawn from rational-expectations models can be re-derived from backward-looking models by choosing the right shock processes; so policy advice is underdetermined by data to an even greater degree than the paper's examples show.
A testable extension would be a systematic audit of published DSGE estimates for local identification, using rank conditions and sensitivity of posteriors to priors; if under-identification is as widespread as the paper claims, such an audit would change reporting standards.
The argument suggests a prediction about the next macro consensus: it will emerge through coalition-building and journal networks rather than through a decisive empirical test, and the new models will face the same observational-equivalence problem.
One possible escape route the paper does not explore is that micro data, natural experiments, and panel data with many cross-sectional units may identify parameters that macro time series cannot; if so, the pessimistic conclusion applies specifically to aggregate time-series macroeconomics, not to all empirical economics.

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Editorial analysis

A structured set of objections, weighed in public.

Desk editor's note, referee report, and a circularity audit.

Desk Editor's Note

read the letter

You should know two things. First, this is a readable and unusually honest methodological critique; the formal results are borrowed, but the framing is the authors' own and worth arguing with. Second, the universal observational-equivalence claim in §4.2 is broader than Pesaran's theorem allows, and the paper's own examples do not support it.

The paper earns credit. It shows clearly why the Solow–Ramsey convergence test cannot identify utility curvature separately from production curvature. It lays out the Lubik–Schorfheide and Beyer–Farmer inflation-persistence examples in a way students can follow. It offers four sensible criteria for choosing among observationally equivalent models. There is no circularity: nothing is estimated or normalized to force the conclusion. The appendix is candid that the citation counts are not reliable measures of impact.

The soft spot is the leap from 'some DSGE models have non-identified parameters' to 'data cannot and will never settle the controversy.' Pesaran's theorem, as the paper itself quotes, requires the absence of a priori restrictions on exogenous processes and disturbances. Estimated DSGE models impose such restrictions—AR(1) shocks with iid innovations, specified policy rules, nonlinear cross-equation restrictions. That makes the DSGE reduced form a restricted VAR, and an unrestricted adaptive-expectations VAR nests it. The cross-equation restrictions are in principle testable, even if weak identification makes tests fragile. The paper's scalar examples show non-identification when a structural parameter enters only the innovation variance; that is a feature of those examples, not a general theorem. The stress-test note is right on this point.

The historical claim—that DSGE won by tacit agreement rather than by evidence—is plausible but under-supported. It relies on secondary histories and selected recollections, and the authors admit their citation data cannot carry the weight. Calling it a 'tacit agreement' is a useful rhetorical interpretation, not a documented finding. If the universal equivalence claim were true, the historical story would be less exposed; once that claim is scaled back, the historical inference has to stand on thinner evidence.

The modest thesis—macro theory has not been cumulative, identification problems are real and under-reported, parsimony should discipline observationally equivalent models—holds up. The immodest thesis does not. The paper is for historians of macro thought and methodologically inclined economists, and it makes for a good reading group. If it crosses my desk, I'd send it out; the referee prompt should focus on §4.2 and on separating the historical narrative from the formal results.

Referee Report

2 major / 6 minor

Summary. The paper argues that the replacement of 1980s macroeconomic theories (monetarism, real business cycles, disequilibrium macroeconomics, and ad hoc rational expectations models) by New-Keynesian DSGE theory was not an empirical victory but the result of a "tacit agreement" among leading macroeconomists around 1997. It claims that observational equivalence between rational expectations DSGE models and adaptive expectations VAR models, together with chronic identification failures, prevents data from settling macroeconomic controversies. These claims are illustrated with two examples: cross-country convergence regressions (Section 3.4) and inflation persistence models (Section 4.3). The paper also proposes criteria (microfoundations, parsimony, identification, interpretability) for selecting among observationally equivalent models and predicts that the New-Keynesian DSGE approach will undergo creative destruction.

Significance. If its claims held in their full generality, the paper would be an important contribution to the methodology and historiography of macroeconomics, connecting long-standing identification results (Pesaran 1981; Canova and Sala 2009; Koop et al. 2013) with the recent critique of DSGE modeling by Romer (2016) and Blanchard (2016). The paper's strengths include a clear synthesis of a large literature, explicit worked examples of non-identification and observational equivalence in convergence and inflation persistence, and a welcome emphasis on the gap between normative and positive economics. The claims are not circular: they rely on external published theorems rather than fitting parameters to reach conclusions. However, the paper's central assertion that "data and econometrics cannot and will never be able to settle the controversy" goes beyond what the cited theorems support and is internally inconsistent with the paper's own acknowledgment that RBC models are misspecified against hump-shaped impulse responses. The historical "tacit agreement" narrative is asserted without direct evidence. These issues materially weaken the force of the argument as currently written.

major comments (2)

[§4.2] The paper asserts "For every linear rational expectations DSGE model, there is an observationally equivalent adaptive expectations VAR model" and concludes "Data and econometrics cannot and will never be able to settle the controversy." This universal claim is not supported by Pesaran (1981), whose theorem, as quoted by the paper, requires "the absence of a priori restrictions on the processes generating the exogenous variables and the disturbances." Estimated DSGE models such as Smets-Wouters (2007) impose exactly such restrictions: exogenous shocks are AR(1) with iid innovations, policy rules are specified, and deep parameters enter the reduced form nonlinearly, generating cross-equation restrictions that are in principle testable against an unrestricted VAR. The paper's own Section 4.1 concedes that RBC models are misspecified because they fail to match hump-shaped impulse responses, which is an example of data discriminating between models; this is inconsistent with the "never" claim. The valid examples in Section 4.3 show non-identification for specific scalar models because the structural parameters appear only in the innovation variance, but that does not generalize to the entire class of estimated DSGE models. Since the paper uses the "cannot and never will" claim as a central pillar for its thesis that the DSGE takeover was not due to empirical success, this overstatement is load-bearing and needs to be substantially revised.
[§2.2] The historical claim that New-Keynesian DSGE theory "is a bargain on two elementary theoretical assumptions and three other core elements between leaders of opinions in theoretical macroeconomics around 1997" is presented as an established fact, but the only evidence offered is interpretive secondary literature (De Vroey 2016; Duarte 2015). No archival documents, interviews, or meeting records are cited to demonstrate a conscious "tacit agreement" or "bargain." The reconstruction may be plausible, but the paper's abstract elevates it to the central alternative to "settlement by nature." The authors should either soften the claim to something like "can be reconstructed as a tacit agreement" or provide direct evidence; otherwise the historical thesis is not falsifiable and the argument appears as narrative rather than documented history.

minor comments (6)

[§1] In the paragraph beginning "We highlight a number of facts," "DGSE" should be "DSGE".
[§4.2] "the method of undetermined coefficient" should be "the method of undetermined coefficients."
[§4.3.1] "Inverting and is observational equivalent" should be "Inverting and are observationally equivalent."
[Table 1] The title "The Chiasm of the New-Keynesian Synthesis" is unclear; please clarify whether "chiasm" is intended as "schism" or "chiasmus."
[References] In the text, "Reinhard and Rogoff 2010" should be "Reinhart and Rogoff 2009" (see also the reference list entry).
[Equations (1)-(2)] The displayed formulas for the convergence parameter in the Solow and Ramsey-Cass-Koopmans models have garbled subscripts and superscripts; please ensure all structural parameters are legibly defined.

Circularity Check

0 steps flagged · score 0.0 of 10

No significant circularity: the paper's claims rest on cited external results and self-contained algebraic equivalences, not on fitting or self-referential derivation.

full rationale

This is a methodological and historical critique rather than a derivation of predictions from fitted parameters. The central claims—observational equivalence of rational- and adaptive-expectations models, non-identification of structural parameters in convergence regressions and in hybrid New-Keynesian Phillips-curve models—are supported by cited external work (Pesaran 1981; Binder and Pesaran 1997; Lubik and Schorfheide 2006; An and Schorfheide 2007) and by the paper's own algebraic demonstrations in Sections 3.4 and 4.3. No parameter is estimated and then renamed a prediction; the notation introduced in equation (3) is generic, and the equivalence results are derived from the stated model assumptions rather than imposed as conclusions. The authors do not cite their own prior work, so no self-citation chain is load-bearing. The broad claim that 'data and econometrics cannot and will never be able to settle the controversy' may overstate the domain of Pesaran's theorem, which the paper itself quotes as requiring 'the absence of a priori restrictions on the processes generating the exogenous variables and the disturbances'; however, overstatement of an external result is a correctness or scope concern, not circularity. The historical 'bargain' narrative in Section 2.2 is presented as an interpretive account, not as something derived from the models under criticism. Accordingly, no circular step is present.

Assumptions & free parameters 0 free parameters · 3 assumptions · 0 invented entities

The paper introduces no new fitted parameters and no new theoretical entities. It relies on established econometric theorems, a normative parsimony principle, and a historical inference from citation patterns. These are assumptions the reader must grant before accepting the central claim.

assumptions (3)

domain assumption Pesaran's observational equivalence theorem applies to the DSGE models under discussion when no a priori restrictions are placed on exogenous processes.
Section 4.2 uses this to claim that every rational expectations DSGE model has an observationally equivalent adaptive expectations VAR model, which is the key to the data-cannot-settle argument.
standard math Ockham's razor, preferring theories with fewer parameters, is a valid criterion for choosing among observationally equivalent models.
The paper applies this normative principle in Sections 3.3 and 4.3.3 to rank adaptive expectations models over DSGE models.
domain assumption Citation counts and the absence of recent PhD theses on a theory are adequate indicators of that theory's death.
Section 2.1 and the appendix use citation data over decades to argue that monetarism, RBC, and disequilibrium theory have died, which underpins the historical claim.

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Cite this review

Pith. "Pith review of Publish and Perish: Creative Destruction and Macroeconomic Theory." pith.science (2026). https://pith.science/paper/AERP4RAI

@misc{pith2026190810680,
  author       = {Pith},
  title        = {Pith review of: Publish and Perish: Creative Destruction and Macroeconomic Theory},
  year         = {2026},
  howpublished = {\url{https://pith.science/paper/AERP4RAI}},
  note         = {Machine review of arXiv:1908.10680}
}

read the original abstract

A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by 'nature'. As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical software, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.

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Reference graph

Works this paper leans on

6 extracted references · 6 canonical work pages

[1]

2005 , «A Meta-Analysis of Convergence: the Legendary 2%», Journal of Economic Surveys, 19, 389-420

Abreu, M., De Groot, H.L., and Florax, R.J. 2005 , «A Meta-Analysis of Convergence: the Legendary 2%», Journal of Economic Surveys, 19, 389-420. An, S. and Schorfheide, F. 2007 , «Bayesian analysis of DSGE models », Econometric Reviews, 26, 113-172. Aquinas T. 1920, Summa Theologiae , Translation Fathers of the English Dominican Province. Online Edition C...

work page 2005
[603]

and Schorfheide, F

Lubik, T. and Schorfheide, F. 2005 , «A Bayesian look at new open economy macroeconomics», NBER macroeconomics annual, 20, 313-366. Lucas, R.E. 1976 , «Econometric policy evaluation: A critique », in Carnegie Rochester conference series on public policy, Vol. 1, Amsterdam, North-Holland, 19-46. Malinvaud, E. 1977, The theory of unemployment reconsidered, ...

work page 2005
[1873]

«Une saison en enfer », Alliance typographique (M. -J. Poot et C ie). Bruxelles. Romer, P.M. 2015 , «Mathiness in the theory of economic growth », American Economic Review, 105, 89-93. Romer, P.M. 2016 , «The trouble with Macroeconomics», Working paper , Paul Romer ’s website, consulted the 14th September

work page 2015
[1976]

In the 2010s, citations of new -Keynesian DSGE articles or books (Clarida, Gal í, Gertler 1999, Woodford 2003, Smets and Wouters 2003,

and real business c ycles (Kydland and Prescott 1982). In the 2010s, citations of new -Keynesian DSGE articles or books (Clarida, Gal í, Gertler 1999, Woodford 2003, Smets and Wouters 2003,

work page 1982
[2007]

This is also the case for Kydland and Presc ott (1982), although genuine RBC models are rarely simulated nowadays

citations are at around 400 per year. This is also the case for Kydland and Presc ott (1982), although genuine RBC models are rarely simulated nowadays. Interestingly, Friedman and Schwartz (1963) is still heavily cited, although money demand estimations run out of fashion in working papers of central banks research departments. This book is also an accou...

work page 1982
[2017]

and Wouters, R

Smets, F. and Wouters, R. 2003 , «An estimated dynamic stochastic general equilibrium model of the euro area», Journal of the European Economic Association, 1, 1123-1175. Smets, F. and Wouters, R. 2007 , «Shocks and frictions in US business cycles: A Bayesian DSGE approach», The American Economic Review, 97, 586-606. Spanos A. 2009 , «The pre-eminence of ...

work page 2003

Pith tools

Reviewed August 14, 2026 · model on record in the stance chip above.

[1] [1]

2005 , «A Meta-Analysis of Convergence: the Legendary 2%», Journal of Economic Surveys, 19, 389-420

Abreu, M., De Groot, H.L., and Florax, R.J. 2005 , «A Meta-Analysis of Convergence: the Legendary 2%», Journal of Economic Surveys, 19, 389-420. An, S. and Schorfheide, F. 2007 , «Bayesian analysis of DSGE models », Econometric Reviews, 26, 113-172. Aquinas T. 1920, Summa Theologiae , Translation Fathers of the English Dominican Province. Online Edition C...

work page 2005

[2] [603]

and Schorfheide, F

Lubik, T. and Schorfheide, F. 2005 , «A Bayesian look at new open economy macroeconomics», NBER macroeconomics annual, 20, 313-366. Lucas, R.E. 1976 , «Econometric policy evaluation: A critique », in Carnegie Rochester conference series on public policy, Vol. 1, Amsterdam, North-Holland, 19-46. Malinvaud, E. 1977, The theory of unemployment reconsidered, ...

work page 2005

[3] [1873]

«Une saison en enfer », Alliance typographique (M. -J. Poot et C ie). Bruxelles. Romer, P.M. 2015 , «Mathiness in the theory of economic growth », American Economic Review, 105, 89-93. Romer, P.M. 2016 , «The trouble with Macroeconomics», Working paper , Paul Romer ’s website, consulted the 14th September

work page 2015

[4] [1976]

In the 2010s, citations of new -Keynesian DSGE articles or books (Clarida, Gal í, Gertler 1999, Woodford 2003, Smets and Wouters 2003,

and real business c ycles (Kydland and Prescott 1982). In the 2010s, citations of new -Keynesian DSGE articles or books (Clarida, Gal í, Gertler 1999, Woodford 2003, Smets and Wouters 2003,

work page 1982

[5] [2007]

This is also the case for Kydland and Presc ott (1982), although genuine RBC models are rarely simulated nowadays

citations are at around 400 per year. This is also the case for Kydland and Presc ott (1982), although genuine RBC models are rarely simulated nowadays. Interestingly, Friedman and Schwartz (1963) is still heavily cited, although money demand estimations run out of fashion in working papers of central banks research departments. This book is also an accou...

work page 1982

[6] [2017]

and Wouters, R

Smets, F. and Wouters, R. 2003 , «An estimated dynamic stochastic general equilibrium model of the euro area», Journal of the European Economic Association, 1, 1123-1175. Smets, F. and Wouters, R. 2007 , «Shocks and frictions in US business cycles: A Bayesian DSGE approach», The American Economic Review, 97, 586-606. Spanos A. 2009 , «The pre-eminence of ...

work page 2003