Dynamic Stochastic General Equilibrium Models

Dynamic Stochastic General Equilibrium (DSGE) models are complex economic tools used to analyze how economies respond over time to various shocks and uncertainties. They incorporate different economic agents, like households and firms, making decisions based on their expectations about the future. "Dynamic" refers to how these decisions evolve over time, "stochastic" means they account for randomness or unpredictability, and "general equilibrium" considers the interactions across all parts of the economy. Economists use these models to understand policy impacts, forecast economic trends, and assess the overall health of economies under changing conditions.