On DSGE Models

Abstract

The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy.A central challenge facing policy makers is how to assess the relative strength of those forces.Dynamic Stochastic General Equilibrium (DSGE) models are the leading framework that macroeconomists have for dealing with this challenge in an open and transparent manner.This paper reviews the state of DSGE models before the financial crisis and how DSGE modelers responded to the crisis and its aftermath.In addition, we discuss the role of DSGE models in the policy process.

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