Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum

WP/12/05 Methodology of Construction, Solution and Parameters Estimation of DSGE Models

Dynamic stochastic general equilibrium models (DSGE) is a modern applied tool for macroeconomic analysis. These models are now widely used by central banks and other economic institutions. The National Bank of Belarus has been conducting research in DSGE modeling since the mid-2000s. DSGE models are based on the economic theory, while parameters of such models are structural and describe the behavior of economic agents at the micro level, which makes DSGE models not to be subject to the Lucas critique. This paper describes the methodology of the practical application of DSGE models, in particular the mechanism of finding optimality conditions, the log-linearization of model equations, solution of systems of linear difference equations with rational expectations, and the estimation of model parameters.