What makes DSGE models difficult to solve is:
A) the forward-looking consumption decision.
B) determining the "right" real interest rate.
C) mathematically solving the utility maximization problem.
D) solving the permanent-income hypothesis.
E) parameterizing the model.

Question

Quizplus · Accepted Answer

DSGE models are challenging to solve primarily because they incorporate forward-looking elements, such as consumption decisions, which depend on expectations about future economic variables. This introduces complexities in the model's dynamic structure.

What Makes DSGE Models Difficult to Solve Is