Which of the following features are frequently included in modern DSGE models?
i. Nominal rigidities
ii. Complete markets
iii. Adjustment costs to capital
A) i, ii, and iii
B) i
C) ii and iii
D) i and ii
E) i and iii

Question

Quizplus · Accepted Answer

Modern DSGE (Dynamic Stochastic General Equilibrium) models often include nominal rigidities, such as sticky prices or wages, and adjustment costs to capital, which represent the costs associated with changing the capital stock. These features are included to better capture the dynamics of real-world economies. Complete markets, where every conceivable risk can be insured against, are less commonly assumed in these models due to their focus on imperfections and frictions in the economy.

Which of the Following Features Are Frequently Included in Modern