Dynamic stochastic general equilibrium

Dynamic stochastic general equilibrium (DSGE) is a way of trying to understand how different economic decisions interact with each other. It is made up of two parts: 'dynamic', which means over time and 'stochastic', which means unpredictable. To understand it, imagine a big jigsaw puzzle. The pieces are the different economic decisions like prices and wages. Putting the puzzle together helps you understand how the economy works and the consequences of taking different actions. When economists use DSGE, they create mathematical models to try to put the puzzle together and figure out how different pieces of the economy are connected.