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Solution Strategies of Dynamic Stochastic General Equilibrium (DSGE) models

Alali, Walid Y. (2009): Solution Strategies of Dynamic Stochastic General Equilibrium (DSGE) models.

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DSGE models are the main tool for analysing various questions in problems of monetary, business cycle theory and fiscal policy problems, growth and other fields in international macroeconomics and macroeconomics. Many macroeconomic publications use the DSGE framework. A consensus has been reached on the methodology for using such kind of model. The resolution of DSGE models remains an area of ongoing interest. This paper provides an overview of the available solution techniques. Linear approximation methods and perturbation methods have been explored in detail. Solving strategies such as the eigenvalue auto-decomposition of Blanchard and Kahn (1980) or the method of indefinite coefficients are explained. A Bayesian estimate is drawn shortly. The evaluation methods are briefly described. Finally, the paper provides some useful resources for practical implementation.

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