Abstract:
The paper undertakes the issue of DSGE models in the modern monetary policy. The first DSGE models were developed in the 1980s, however they began to be used on a large scale in central banks at the beginning of the 21st century. DSGE models belong to the group of general equilibrium models. Currently, central banks have even more than one DSGE models that used in their forecasting analysis and decision-making process. DSGE models have their supporters and opponents that describe their advantages and at the same time disadvantages. Nevertheless, they are a complex model that based on theory first over empirical data. The main aim of the article is to systematize the current state of knowledge in the field of DSGE models, as well as to assess their role in modern monetary policy. Therefore, the article has a theoretical character, is a kind of review presenting the evolution of early DSGE models, general assumptions and characteristics of modern DSGE models, as well as main advantages and disadvantages from the perspective of their application in monetary policy. At the end of the paper the current forecasting model of the Federal Reserve System was presented.
