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DSGE models and their use in monetary policy

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  • Michael Dotsey

Abstract

The past 10 years or so have seen the development of a new class of models that are proving useful for monetary policy: dynamic stochastic general equilibrium (DSGE) models. Many central banks around the world, including the Swedish central bank, the European Central Bank, the Norwegian central bank, and the Federal Reserve, use these models in formulating monetary policy. In this article, Mike Dotsey discusses the major features of DSGE models and why these models are useful to monetary policymakers. He outlines the general way in which they are used in conjunction with other tools commonly employed by monetary policymakers and points out the promise of using these models as well as the pitfalls.

Suggested Citation

  • Michael Dotsey, 2013. "DSGE models and their use in monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 10-16.
    • Handle: RePEc:fip:fedpbr:y:2013:i:q2:p:10-16
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    References listed on IDEAS

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    1. Kiley, Michael T., 2013. "Output gaps," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 1-18.
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    Cited by:

    1. Chen, David Y. & Li, Tongzhe, 2014. "Financial crises, Asian stock indices, and current accounts: An Asian-U.S. comparative study," Journal of Asian Economics, Elsevier, vol. 34(C), pages 66-78.
    2. Lyu, Juyi & Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2023. "UK monetary policy in an estimated DSGE model with financial frictions," Journal of International Money and Finance, Elsevier, vol. 130(C).
    3. Belanger, Gilles, 2014. "The Overlooked Assumption Behind the New Keynesian Phillips Curve," MPRA Paper 55629, University Library of Munich, Germany.
    4. Feto, Adem & M. K., Jayamohan, 2023. "Can Ethiopia Reach a Lower-Middle-Income Status by 2025? A Framework of DSGE and VAR Models," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 32(01), April.

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