Dynamic Stochastic General Equilibrium

Dynamic Stochastic General Equilibrium (DSGE) models are tools economists use to understand how an economy evolves over time. They consider how households, firms, and government agents make decisions based on their goals, expectations, and randomness (like unexpected shocks). These models analyze how policies or external changes impact economic variables such as growth, inflation, and employment, capturing complex interactions within the economy. By incorporating uncertainty and future expectations, DSGE models help policymakers predict economic responses and design effective strategies for stability and growth.