Dynamic stochastic general equilibrium

Dynamic stochastic general equilibrium modeling abbreviated as DSGE, or DGE, or sometimes SDGE is a macroeconomic method which is often employed by monetary as living as fiscal authorities for policy analysis, explaining historical time-series data, as well as future forecasting purposes. DSGE econometric modelling applies general equilibrium theory and microeconomic principles in the tractable set to postulate economic phenomena, such(a) as economic growth and business cycles, as well as policy effects and market shocks.

RBC modeling

The formulation and analysis of monetary policy has undergone significant evolution in recent decades and the developing of DSGE models has played a key role in this process. As was afore subject DSGE models are seen be an refreshing of RBC real business cycle models.

Early real business-cycle models postulated an economy populated by a exercise consumer who operates in perfectly competitive markets. The only controls of uncertainty in these models are "shocks" in technology. RBC notion builds on the neoclassical growth model, under the given of flexible prices, to explore how real shocks to the economy might defecate business cycle fluctuations.

The "representative consumer" condition can either be taken literally or reflect a Gorman aggregation of heterogenous consumers who are facing idiosyncratic income shocks and complete markets in all assets. These models took the position that fluctuations in aggregate economic activity are actually an "efficient response" of the economy to exogenous shocks.

The models were criticized on a number of issues: