Introduction to Dynamic Stochastic General Equilibrium (DSGE) Modelling Training Workshop

DSGE Modelling

The five day training workshop on Dynamic Stochastic General Equilibrium (DSGE) modelling which saw the training of 18 participants drawn from the Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe, was held from the 14th – 18th of May 2018 at Holiday Inn, Mutare. 

The course was held under the African Capacity Building Foundation (ACBF) Economic Governance Enhancement Project.  The main objective of the training workshop was to equip participants with requisite skills to use DSGE modelling in conducting monetary and fiscal policy analysis. Once they are back at their work stations, workshop participants are expected to use the knowledge gained to start building a model using Zimbabwe data which will assist in addressing specific fiscal and monetary policy questions the country is grappling with. 

The rationale for selection of this course was that DSGE models are macro models which go beyond the structural models. They are not a single equation model but are large scale models that describe the behaviour of the economy as a whole by analysing interaction of many microeconomic decisions. They are generated from decisions made by optimising economic agents based on previous, current and future decisions. The model takes into account key sectors of the economy which include households, firms, central bank, government and the external sector. It provides a framework for identifying different types and sources of shocks and showing how these shocks are transmitted through the economy. The shocks can be in form of a sharp decline in gold price on the international market to a commodity dependent economy like Zimbabwe. The model will thus allow for simulation of these shocks and are good for forecasting. They can forecast and predict the effects of policy changes in an economy and can also be used to evaluate alternative policies. The DSGE tools are used to inform economic outlooks and formulation of policy strategies hence the use of DSGE models has moved from academic circles to the policy making community.