Dynamic Stochastic General Equilibrium Models (DSGE): an Introduction

Abstract

Dynamic and Stochastic General Equilibrium (DSGE) models have become a frequent choice of modeling methodology for complex dynamic and stochastic phenomena in different branches of economics. They are increasingly used by decision-makers to analyze various policy decisions or to generate rigorous forecasts. This paper seeks to provide a first approximation to this fascinating field within the mathematical modeling of human endeavor. It synthesizes how DSGE models are constructed and also illustrates how they are solved and how their parameters are calibrated or econometrically estimated, using software especially designed for such a purpose.

JEL classification: C32 ; C63