DSGE Models: Practical Methodological Note and Recent Trends

Alfranio Rodrigo Trescher and Mathias Schneid Tessmann

Applied Economics and Finance, 2025, vol. 12, issue 2, 29-50

Abstract: This methodological note aims to present a brief yet comprehensive step-by-step guide for estimating Dynamic Stochastic General Equilibrium (DSGE) models and its recent trends. The first chapter introduces DSGE models to achieve this, discussing their theoretical foundations, historical evolution, and main applications. The second chapter explores the relationship between DSGE models and semi-structural models, highlighting their differences and complementarities in macroeconomic analysis. The third chapter presents the theoretical foundations for constructing these models, detailing the behavior of economic agents, general equilibrium mechanisms, and the modeling of stochastic shocks. The fourth chapter provides examples of the application of DSGE models in monetary and fiscal policy, analyzing the influence of different economic policy rules on macroeconomic behavior. Finally, the fifth chapter outlines the limitations of using DSGE models, including theoretical criticisms, difficulties in modeling economic crises, and challenges in parameter estimation. Thus, we aim to contribute to researchers, market professionals, and students who intend to use these models in their work.

Date: 2025
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