Post-crisis attempts to make DSGE models realistic are self-contradictory

Evidence

All these current fragmentary amendments to render the DSGE model more “realistic,” or perhaps more politically acceptable to the New Keynesians, turn out to be self-contradictory, since they attempt to mitigate or “undo” the microfoundations that had been imposed from the outset. It ends up being yet one more instance of economists blithely asserting both A and not-A simultaneously. By thrusting the rabbit into the hat, then pulling it back out with a different hand, the economist merely creates a model more awkward, arbitrary, and unprepossessing than if he had just started out explicitly to model confused heterogeneous agents, dodgy banks, consciously duplicitous CDOs, informationally challenged markets, and all the rest of the usual suspects for the crisis, minus the neoclassical window dressing and professions of fealty to “equilibrium.” If you allowed freedom of amendment to the DSGE in this manner, you would end up with models that violated the Lucas critique in a more egregious fashion than the earlier Keynesian models these macroeconomists love to hate. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 801

Categorization

• QUESTION: Could chase down precisely how the Lucas critique is violated by amending DSGE microfoundations — a technical philosophical claim worth verifying.
• XREF: connects to: Orthodox crisis models still measure fluctuations against rational-expectations equilibrium. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 2208; DSGE models rule out genuine uncertainty by requiring insurable probabilities for all events — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 782; Bloggers lampooned DSGE by turning its own rational-expectations logic against it — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 784 (+1 more)