Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27466 
Year of Publication: 
2008
Series/Report no.: 
Economics Discussion Papers No. 2008-30
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
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 recognises that they offer coherent frameworks for structuring policy discussions. Nonetheless, they are not ready to accomplish all that is being asked of them. First, they still need to incorporate relevant transmission mechanisms or sectors of the economy; Second, issues remain on how to empirically validate them; and finally, challenges remain on how to effectively communicate their features and implications to policy makers and to the public. 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.
Subjects: 
DSGE models
Central Banks
Communication
Estimation
Modelling
JEL: 
F37
C5
E58
F47
E37
F41
E52
E32
B4
E0
E50
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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