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Over the past 15 years there has been remarkable progress in the specification and estimation of dynamic stochastic general equilibrium (DSGE) models. Central banks in developed and emerging market economies have become increasingly interested in their usefulness for policy analysis and forecasting. This paper reviews some issues and challenges surrounding the use of these models at central banks. It recognizes that they offer coherent frameworks for structuring policy discussions. Overall, at their current stage DSGE models have important limitations. How much of a problem this is will depend on their specific use at central banks.
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