Dynamic stochastic general equilibrium captures fluctuations from "summary" of EBOOK: Macroeconomics by Rudiger Dornbusch,Stanley Fischer,Richard Startz
The concept of dynamic stochastic general equilibrium lies at the heart of modern macroeconomic theory. It is a framework that allows us to understand how economies evolve over time in response to various shocks and disturbances. By incorporating randomness and uncertainty into the model, DSGE models are able to capture the fluctuations that we observe in real-world economies. At the core of DSGE models is the idea that economic agents – households, firms, and policymakers – make decisions based on their expectations about the future. These expectations are crucial because they determine how agents respond to changes in the economic environment. For example, if households expect prices to rise in the future, they may choose to consume more goods and servic...
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