🤖 AI Summary
This study addresses the ambiguity in policy analysis arising from the lack of a unified equilibrium selection mechanism in dynamic stochastic general equilibrium (DSGE) models under multiple equilibria. Viewing DSGE models as fixed-point selection devices within self-referential economies, the paper proposes a unified framework comprising model specification, a self-reference operator, and a programmable equilibrium selector. It formalizes equilibrium selection as a computable operation for the first time, demonstrating that the Blanchard–Kahn conditions correspond to a specific selector and introducing alternative rules—such as minimum variance and fiscal anchoring—to better reflect policy intent. Leveraging linear rational expectations systems and standard solution techniques like QZ decomposition and OccBin, the framework enables efficient computation and validation of selectors. This approach reinterprets mainstream DSGE solution methods, facilitates systematic comparison of selection rules, and significantly enhances model transparency and policy relevance.
📝 Abstract
This paper characterizes DSGE models as fixed-point selection devices for self-referential economic specifications. We formalize this structure as $(S, T, \Pi)$: specification, self-referential operator, and equilibrium selector. The framework applies to any DSGE model through compositional pipelines where specifications are transformed, fixed points computed, and equilibria selected. We provide formal results and computational implementation for linear rational-expectations systems, reinterpreting Blanchard-Kahn conditions as a specific selection operator and verifying that standard solution methods (such as QZ decomposition and OccBin) realize this operation. We show that alternative selectors (minimal-variance, fiscal anchoring) become available under indeterminacy, revealing selection as a policy choice rather than a mathematical necessity. Our framework reveals the formal structure underlying DSGE solution methods, enabling programmatic verification and systematic comparison of selection rules.