Dynamic stochastic general equilibrium

Dynamic stochastic general equilibrium

Overview
Dynamic stochastic general equilibrium modeling (abbreviated DSGE or sometimes SDGE or DGE) is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

, business cycles, and the effects of monetary
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 and fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

, on the basis of macroeconomic models derived from microeconomic principles
Microfoundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory....

. One of the main reasons macroeconomists seek to build microfounded models is that, unlike more traditional macroeconometric forecasting models
Large-scale macroeconometric model
Following the development of Keynesian economics, applied economics began developing forecasting models based on economic data including national income and product accounting data. In contrast with typical textbook models, these large-scale macroeconometric models used large amounts of data and...

, microfounded models should not, in principle, be vulnerable to the Lucas critique
Lucas critique
The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...

.
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Encyclopedia
Dynamic stochastic general equilibrium modeling (abbreviated DSGE or sometimes SDGE or DGE) is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

, business cycles, and the effects of monetary
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 and fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

, on the basis of macroeconomic models derived from microeconomic principles
Microfoundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory....

. One of the main reasons macroeconomists seek to build microfounded models is that, unlike more traditional macroeconometric forecasting models
Large-scale macroeconometric model
Following the development of Keynesian economics, applied economics began developing forecasting models based on economic data including national income and product accounting data. In contrast with typical textbook models, these large-scale macroeconometric models used large amounts of data and...

, microfounded models should not, in principle, be vulnerable to the Lucas critique
Lucas critique
The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...

. Furthermore, since the microfoundations
Microfoundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory....

 are based on the preferences of the decision-makers in the model, DSGE models feature a natural benchmark for evaluating the welfare effects of policy changes (for discussion of both points, see Woodford, 2003, pp. 11-12 and Tovar, 2008, pp. 15-16).

Structure of DSGE models


Like other general equilibrium
General equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...

 models, DSGE models aim to describe the behavior of the economy as a whole by analyzing the interaction of many microeconomic decisions. The decisions considered in most DSGE models correspond to some of the main quantities studied in macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

, such as consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...

, saving, investment, and labor supply and labor demand
Labor demand
In economics, labor demand refers to the number of hours of hiring that an employer is willing to do based on the various exogenous variables it is faced with, such as the wage rate, the unit cost of capital, the market-determined selling price of its output, etc...

. The decision-makers in the model, often called 'agents'
Agent (economics)
In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory....

, may include household
Household
The household is "the basic residential unit in which economic production, consumption, inheritance, child rearing, and shelter are organized and carried out"; [the household] "may or may not be synonymous with family"....

s, business firms
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

, and possibly others, such as government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

s or central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

s.

Furthermore, as their name indicates, DSGE models are dynamic, studying how the economy evolves over time. They are also stochastic
Stochastic process
In probability theory, a stochastic process , or sometimes random process, is the counterpart to a deterministic process...

, taking into account the fact that the economy is affected by random shocks
Shock (economics)
In economics a shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. Technically, it refers to an unpredictable change in exogenous factors—that is, factors unexplained by economics—which may have an impact on endogenous economic variables.The...

 such as technological change, fluctuations in the price of oil, or changes in macroeconomic policy-making. This contrasts with the static models studied in Walrasian
Léon Walras
Marie-Esprit-Léon Walras was a French mathematical economist associated with the creation of the general equilibrium theory.-Life and career:...

 general equilibrium
General equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...

 theory, applied general equilibrium
Applied general equilibrium
In mathematical economics, applied general equilibrium models were pioneered by Herbert Scarf at Yale University in 1967, in two papers, and a follow up book with Terje Hansen in 1973, with the aim of empirically estimating the Arrow–Debreu general equilibrium model with empirical data, to provide...

 models and some computable general equilibrium
Computable general equilibrium
Computable general equilibrium models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors...

 models.

For a coherent description of the macroeconomy, DSGE models must spell out the following economic 'ingredients'.
  • Preferences: the objectives of the agents
    Agent (economics)
    In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory....

     in the economy must be specified. For example, households might be assumed to maximize a utility
    Utility
    In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....

     function over consumption and labor effort. Firms might be assumed to maximize profit
    Profit (economics)
    In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...

    s.

  • Technology: the productive capacity of the agents in the economy must be specified. For example, firms might be assumed to have a production function
    Production function
    In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs...

    , specifying the amount of goods produced, depending on the amount of labor and capital they employ. Technological constraints on agents' decisions might also include costs of adjusting their capital stocks, their employment relations, or the prices of their products.

  • Institutional framework: the institutional constraints governing economic interactions must be specified. In many DSGE models, this might just mean that agents must obey some exogenously imposed budget constraint
    Budget constraint
    A budget constraint represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices...

    s, and that prices are assumed to adjust until markets clear
    Market clearing
    In economics, market clearing refers to either# a simplifying assumption made by the new classical school that markets always go to where the quantity supplied equals the quantity demanded; or# the process of getting there via price adjustment....

    . It might also mean specifying the rules of monetary and fiscal policy, or even how policy rules and budget constraints change depending on a political process.


Traditional macroeconometric forecasting models used by central banks in the 1970s, and even today, estimated the dynamic correlations between prices and quantities in different sectors of the economy, and often included thousands of variables. Since DSGE models start from microeconomic principles
Microfoundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory....

 of constrained
Constraint (mathematics)
In mathematics, a constraint is a condition that a solution to an optimization problem must satisfy. There are two types of constraints: equality constraints and inequality constraints...

 decision-making, instead of just taking as given observed correlations, they are technically more difficult to solve and analyze. Therefore they usually abstract from so many sectoral details, and include far fewer variables: just a few variables in theoretical DSGE papers, or on the order of a hundred variables in the experimental DSGE forecasting models now being constructed by central banks. What DSGE models give up in sectoral detail, they attempt to make up in logical consistency.

Advantages and disadvantages of DSGE modeling


By specifying preferences (what the agents want), technology (what the agents can produce), and institutions (the way they interact), it is possible (in principle, though challenging in practice) to solve the DSGE model to predict what is actually produced, traded, and consumed, and how these variables evolve over time in response to various shocks. In principle, it is also possible to make predictions about the effects of changing the institutional framework.

In contrast, as Robert Lucas
Lucas critique
The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...

 pointed out, such a prediction is unlikely to be valid in traditional macroeconometric forecasting models, since those models are based on observed past correlations between macroeconomic variables. These correlations can be expected to change when new policies are introduced, invalidating predictions based on past observations.

Given the difficulty of constructing accurate DSGE models, most central banks still rely on traditional macroeconometric models for short-term forecasting. However, the effects of alternative policies are increasingly studied using DSGE methods. Since DSGE models are constructed on the basis of assumptions about agents' preferences, it is possible to ask whether the policies considered are Pareto optimal, or how well they satisfy some other social welfare
Social welfare function
In economics, a social welfare function is a real-valued function that ranks conceivable social states from lowest to highest. Inputs of the function include any variables considered to affect the economic welfare of a society...

 criterion derived from preferences (Woodford, 2003, p. 12).

Schools of DSGE modeling


At present two competing schools of thought form the bulk of DSGE modeling.
  • Real business cycle
    Real business cycle theory
    Real business cycle theory are a class of macroeconomic models in which business cycle fluctuations to a large extent can be accounted for by real shocks. Unlike other leading theories of the business cycle, RBC theory sees recessions and periods of economic growth as the efficient response to...

     (RBC) theory builds on the neoclassical growth model
    Exogenous growth model
    The neoclassical growth model, also known as the Solow–Swan growth model or exogenous growth model, is a class of economic models of long-run economic growth set within the framework of neoclassical economics...

    , under the assumption of flexible prices, to study how real shocks to the economy might cause business cycle fluctuations. The paper of Kydland and Prescott
    Edward C. Prescott
    Edward Christian Prescott is an American economist. He received the Nobel Memorial Prize in Economics in 2004, sharing the award with Finn E. Kydland, "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles"...

     (1982) is often considered the starting point of RBC theory and of DSGE modeling in general. The RBC point of view is surveyed in Cooley (1995).

  • New-Keynesian
    New Keynesian economics
    New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of New Classical macroeconomics.Two main assumptions define the New...

     DSGE models build on a structure similar to RBC models, but instead assume that prices are set by monopolistically competitive firms, and cannot be instantaneously and costlessly adjusted. The paper that first introduced this framework was Rotemberg and Woodford (1997). Introductory and advanced textbook presentations are given by Galí
    Jordi Galí
    Jordi Galí is a Spanish macroeconomist who is regarded as one of the main figures in New Keynesian macroeconomics today...

     (2008) and Woodford
    Michael Woodford (economist)
    Michael Dean Woodford is an American macroeconomist and monetary theorist who currently teaches at Columbia University.-Academic career:...

     (2003). Monetary policy implications are surveyed by Clarida
    Richard Clarida
    Richard Clarida is an American economist, C. Lowell Harriss Professor of Economics and International Affairs at the School of International and Public Affairs at Columbia University and Global Strategic Advisor for PIMCO. He is notable for his contributions to dynamic stochastic general...

    , Galí
    Jordi Galí
    Jordi Galí is a Spanish macroeconomist who is regarded as one of the main figures in New Keynesian macroeconomics today...

    , and Gertler
    Mark Gertler
    Mark Gertler was a British painter of figure subjects, portraits and still-life.His early life and his relationship with Dora Carrington were the inspiration for Gilbert Cannan's novel Mendel. The characters of Loerke in D. H...

     (1999).

Example


The European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...

 (ECB) has developed a DSGE model, often called the Smets-Wouters model, which it uses to analyze the economy of the Eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

 as a whole (in other words, the model does not analyze individual European countries separately). The model is intended as an alternative to the Area-Wide Model (AWM), a more traditional empirical forecasting model which the ECB has been using for several years. The ECB webpage that describes the Smets-Wouters model also discusses the advantages of building a DSGE model instead of relying on more traditional methods.

The equations in the Smets-Wouters model describe the choices of three types of decision makers
Agent (economics)
In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory....

: households, who choose how much to work, to consume, and to invest; firms, which choose how much labor and capital to employ; and the central bank, which controls monetary policy. The parameter
Parameter
Parameter from Ancient Greek παρά also “para” meaning “beside, subsidiary” and μέτρον also “metron” meaning “measure”, can be interpreted in mathematics, logic, linguistics, environmental science and other disciplines....

s in the equations were estimated using Bayesian
Bayesian statistics
Bayesian statistics is that subset of the entire field of statistics in which the evidence about the true state of the world is expressed in terms of degrees of belief or, more specifically, Bayesian probabilities...

 statistical techniques so that the model approximately describes the dynamics of GDP, consumption, investment, prices, wages, employment, and interest rates in the Eurozone economy. In order to accurately reproduce the sluggish behavior of some of these variables, the model incorporates several types of frictions that slow down adjustment to shocks
Shock (economics)
In economics a shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. Technically, it refers to an unpredictable change in exogenous factors—that is, factors unexplained by economics—which may have an impact on endogenous economic variables.The...

, including sticky prices and wages
Sticky (economics)
Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. Sticky prices are an important part of macroeconomic theory since they may be used to explain why markets might not reach equilibrium right away. Nominal wages are often said...

, and adjustment costs in investment.

Controversy


Willem Buiter
Willem Buiter
Willem Hendrik Buiter Willem Hendrik Buiter Willem Hendrik Buiter (born September 26, 1949]] was a member of the Bank of England's Monetary Policy Committee from June 1997-May 2000. He joined the London School of Economics as a chair in the European Institute in September 2005....

 has argued that DSGE models rely excessively on an assumption of complete market
Complete market
In economics, a complete market is one in which the complete set of possible gambles on future states-of-the-world can be constructed with existing assets without friction. Every agent is able to exchange every good, directly or indirectly, with every other agent without transaction costs...

s, and are unable to describe the highly nonlinear dynamics of economic fluctuations, making training in 'state-of-the-art' macroeconomic modeling "a privately and socially costly waste of time and resources".

N. Gregory Mankiw
N. Gregory Mankiw
Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University. Mankiw is known in academia for his work on New Keynesian economics....

, regarded as one of the founders of New Keynesian DSGE modeling, has also argued that
'New classical and new Keynesian research has had little impact on practical macroeconomists who are charged with ... policy. ... From the standpoint of macroeconomic engineering, the work of the past several decades looks like an unfortunate wrong turn.'


Michael Woodford
Michael Woodford (economist)
Michael Dean Woodford is an American macroeconomist and monetary theorist who currently teaches at Columbia University.-Academic career:...

, replying to Mankiw, argues that DSGE models are commonly used by central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

s today, and have strongly influenced policy makers like Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

. However, he argues that what is learned from DSGE models is not so different from traditional Keynesian analysis:
'It is true that the modeling efforts of many policy institutions can reasonably be seen as an evolutionary development within the macroeconomic modeling program of the postwar Keynesians; thus if one expected, with the early New Classicals, that adoption of the new tools would require building anew from the ground up, one might conclude that the new tools have not been put to use. But in fact they have been put to use, only not with such radical consequences as had once been expected.'


Narayana Kocherlakota
Narayana Kocherlakota
Narayana Kocherlakota is an American economist and is the 12th and current president of the Federal Reserve Bank of Minneapolis.- Early life and education :...

, President of the Federal Reserve Bank of Minneapolis
Federal Reserve Bank of Minneapolis
The Federal Reserve Bank of Minneapolis, located in Minneapolis, Minnesota, in the United States, covers the 9th District of the Federal Reserve, including Minnesota, Montana, North and South Dakota, northwestern Wisconsin, and the Upper Peninsula of Michigan...

, acknowledges that DSGE models were not very useful for analyzing the financial crisis of 2007-2010.
Nonetheless, he argues that the applicability of these models is improving, and that there is growing consensus among macroeconomists that DSGE models need to incorporate both price stickiness and financial market frictions.

The United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 hosted hearings on macroeconomic modeling methods on July 20, 2010, to investigate why macroeconomists failed to foresee the Financial crisis of 2007-2010. Robert Solow
Robert Solow
Robert Merton Solow is an American economist particularly known for his work on the theory of economic growth that culminated in the exogenous growth model named after him...

 blasted DSGE models currently in use:
'I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying out a rationally designed, long-term plan, occasionally disturbed by unexpected shocks, but adapting to them in a rational, consistent way... The protagonists of this idea make a claim to respectability by asserting that it is founded on what we know about microeconomic
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...

 behavior, but I think that this claim is generally phony. The advocates no doubt believe what they say, but they seem to have stopped sniffing or to have lost their sense of smell altogether.'


V.V. Chari pointed out, however, that state-of-the-art DSGE models are more sophisticated than their critics suppose:
'The models have all kinds of heterogeneity in behavior and decisions... people's objectives differ, they differ by age, by information, by the history of their past experiences. '


Chari also argued that current DSGE models frequently incorporate frictional unemployment
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....

, financial market imperfections
Incomplete markets
In economics, incomplete markets refers to markets in which the number of Arrow–Debreu securities is less than the number of states of nature...

, and sticky
Sticky (economics)
Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. Sticky prices are an important part of macroeconomic theory since they may be used to explain why markets might not reach equilibrium right away. Nominal wages are often said...

 prices and wages, and therefore imply that the macroeconomy behaves in a suboptimal way which monetary
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 and fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 may be able to improve.

Commenting on the Congressional session, The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

 asked whether Agent based model
Agent based model
An agent-based model is a class of computational models for simulating the actions and interactions of autonomous agents with a view to assessing their effects on the system as a whole...

s might better predict financial crises
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...

 than DSGE models.

See also

  • Lucas critique
    Lucas critique
    The Lucas critique, named for Robert Lucas′ work on macroeconomic policymaking, argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.The basic idea...

  • Real business cycles
  • New Keynesian economics
    New Keynesian economics
    New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of New Classical macroeconomics.Two main assumptions define the New...

  • General equilibrium
    General equilibrium
    General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...

  • Applied general equilibrium
    Applied general equilibrium
    In mathematical economics, applied general equilibrium models were pioneered by Herbert Scarf at Yale University in 1967, in two papers, and a follow up book with Terje Hansen in 1973, with the aim of empirically estimating the Arrow–Debreu general equilibrium model with empirical data, to provide...

     (AGE) models
  • Computable general equilibrium
    Computable general equilibrium
    Computable general equilibrium models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors...

     (CGE) models
  • Macroeconomic model
  • Large-scale macroeconometric model
    Large-scale macroeconometric model
    Following the development of Keynesian economics, applied economics began developing forecasting models based on economic data including national income and product accounting data. In contrast with typical textbook models, these large-scale macroeconometric models used large amounts of data and...

  • Welfare cost of business cycles
    Welfare cost of business cycles
    In macroeconomics, the welfare cost of business cycles refers to the decrease in social welfare, if any, caused by business cycle fluctuations....

  • New neoclassical synthesis
    New neoclassical synthesis
    New neoclassical synthesis or new synthesis is the fusion of the major, modern macroeconomic schools of thought, new classical and new Keynesian, into a consensus on the best way to explain short-run fluctuations in the economy.Mankiw , 38. This new synthesis is analogous to the neoclassical...


External links

  • Society for Economic Dynamics - Website of the Society for Economic Dynamics, dedicated to advances in DSGE modeling
  • DSGE-NET - International Network for DSGE modeling, monetary and fiscal policy
  • DYNARE - software for DSGE modeling