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DSGE Models: Practical Methodological Note and Recent Trends

Author

Listed:
  • Alfranio Rodrigo Trescher
  • Mathias Schneid Tessmann

Abstract

This methodological note aims to present a brief yet comprehensive step-by-step guide for estimating Dynamic Stochastic General Equilibrium (DSGE) models and its recent trends. The first chapter introduces DSGE models to achieve this, discussing their theoretical foundations, historical evolution, and main applications. The second chapter explores the relationship between DSGE models and semi-structural models, highlighting their differences and complementarities in macroeconomic analysis. The third chapter presents the theoretical foundations for constructing these models, detailing the behavior of economic agents, general equilibrium mechanisms, and the modeling of stochastic shocks. The fourth chapter provides examples of the application of DSGE models in monetary and fiscal policy, analyzing the influence of different economic policy rules on macroeconomic behavior. Finally, the fifth chapter outlines the limitations of using DSGE models, including theoretical criticisms, difficulties in modeling economic crises, and challenges in parameter estimation. Thus, we aim to contribute to researchers, market professionals, and students who intend to use these models in their work.

Suggested Citation

  • Alfranio Rodrigo Trescher & Mathias Schneid Tessmann, 2025. "DSGE Models: Practical Methodological Note and Recent Trends," Applied Economics and Finance, Redfame publishing, vol. 12(2), pages 29-50, May.
    • Handle: RePEc:rfa:aefjnl:v:12:y:2025:i:2:p:29-50
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    References listed on IDEAS

    as
    1. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
    2. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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