system
Given the following post, respond as if you're commenting on Reddit:
human
What is the DSGE Model?

I'm a 2nd year undergrad student at economics, and despite knowing a bit about the terminology and the history, the wikipedia page (that usually helps) couldn't really help me understand the basics of the DSGE Model, and its implications for policies and macroeconomic research. This is despite being a bit familiar with the critique of Lucas. Do you have any recommendations for me to better understand the DSGE Model?
gpt
you are just a 2nd year undergrad so don't worry if you don't know it. we typically don't learn it that early (if at all, for some undergrad programs).

DSGE stands for Dynamic Stochastic General Equilibrium, and it's a modelling standard for macroeconomic models. more specifically, a model needs to be dynamic, in the sense that the agents make decisions taking into account all future periods, it needs to be stochastic, in the sense that some variables are determined also stochastically (random error terms in some equations which then are carried over all the way to the equilibrium solution, and are used to make predictions or to evaluate the model with impulse response functions), and general in the sense that in the model all types markets and agents will feature in the model and they will all be at equilibrium at the derived equilibrium.

take for example the simple ISLM model, i assume you are familiar with (if you aren't, all the better for you tbh). it's not a DSGE, because the model is not dynamic, the variables dont move through time, it's not stochastic since there are no stochastic terms, the variables are all exact points on graphs, and it is a "general" equilibrium model in the sense that the markets it has clear, but it's not a general equilibrium model in the sense that it is not microfounded (with households, firms, intermediate firms, banks, or what have you)