What Is DSGE?

Dynamic stochastic general equilibrium (DSGE) is a macroeconomic model that facilitates macroeconomic analysis and policy making in central banks, as well as government and nongovernmental organizations (NGOs). DSGE models, such as the European Central Bank’s Smets-Wouters framework, perform time-based macroeconomic general equilibrium analysis of interactions between economic variables.

Common tasks for central bank economists to develop and analyze DSGE models and create fan charts include:

  • Running estimations and computing the steady state of nonlinear models
  • Applying Bayesian statistical techniques
  • Performing general equilibrium modeling

See also: econometrics and economics, Monte Carlo simulation, analytical solution, time series regression, systemic risk