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DSGE Models: Crisis, Financial Frictions, and the Future of Macro Policy

DSGE Models: Crisis, Financial Frictions, and the Future of Macro Policy

Update: 2025-11-13
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Dynamic Stochastic General Equilibrium (DSGE) models are the leading, transparent tool for macroeconomic policy assessment. Discover why these models failed to predict the 2008 financial crisis, and how economists are now fundamentally improving them by incorporating crucial elements like financial frictions and addressing the Zero Lower Bound (ZLB). Learn how these complex, data-based models are used by institutions like the Federal Reserve to sharpen policymaker judgment worldwide

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DSGE Models: Crisis, Financial Frictions, and the Future of Macro Policy

DSGE Models: Crisis, Financial Frictions, and the Future of Macro Policy

Economic Insight