dsge

     

Dynamic stochastic general equilibrium moeling (abbreviated DSGE or sometimes DGE) is a branch of applied general equilibrium theory that is increasingly influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles. One of the main reasons macroeconomists have begun to build DSGE models is that unlike more traditional macroeconometric forecasting models, DSGE macroeconomic models should not, in principle, be vulnerable to the Lucas critique (Woodford, 2003, p. 11).

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