Dynamic Stochastic General Equilibrium Model

A Dynamic Stochastic General Equilibrium (DSGE) Model is a tool economists use to analyze how a country's economy reacts over time to shocks, like changes in interest rates or government policies. It combines microeconomic principles—how individuals and companies make decisions—with macroeconomic goals, such as growth and stability. By considering randomness ("stochastic") and how the economy evolves ("dynamic"), these models help predict future economic paths and inform policy decisions that aim to maintain balanced growth and minimize volatility.