A note on Dynamic Stochastic General Equilibrium Models(DSGE).

A brief overview.

Before we talk about DSGE models, we need to first talk about macroeconomics. Macroeconomics is simply a way of understanding the behavior and performance of the economy as a whole.¹

A DSGE model is a method in macroeconomics that incorporates the evolution of economy, random shocks(like COVID-19) to economy, and general equilibrium theory. As per Wikipedia, “DSGE models share a structure built around three interrelated “blocks”: a demand block, a supply block, and a monetary…