A class of theoretical models that describe the comovement of macroeconomic variables in an open or a closed economy. A typical DSGE model is based on microeconomic foundations with utility-maximizing consumers, profit-maximizing firms, and a price mechanism to ensure market clearing. The market structure is often modelled as monopolistic competition. DSGE models assume that economic fundamentals are subjected to random shocks which drive short-term fluctuations in the model’s variables. It is typical for models to include various real and nominal rigidities, such as habit persistence in consumption and sticky nominal prices and wages. Policy-makers are represented by a monetary authority that sets an interest rate according to some monetary rule, usually as a feedback rule in response to the deviation of the inflation rate and the output gap from their target values, and by a fiscal authority that chooses the level of government spending which is financed by either taxes or debt. DSGE models are a popular analytical tool in New Keynesian economics and are widely used in policy analysis and forecasting.