5. Overview and General Assumptions

Modern dynamic macroeconomic models are not flawless, they suffer from certain significant limitations. But they provide a highly flexible platform, on which improvements and developments can be realized. As we have discussed, modern mainstream macroeconomics incorporates major contributions of economic research over the last decades, and its empirical DSGE model is of great versatility and flexibility. Theoretical developments of economics can be empirically realized in the corresponding DSGE model by modifying the underlying assumptions and adding more economic features. These qualities are highly desirable for scholars, who attempt to build new dynamic models with more comprehensive structure. In this chapter, we demonstrate an overview of the dynamic macroeconomic system designed for emerging market economies. In the first section, the incentives to develop such a model is discussed. Section 5.2 summarizes the general assumptions underlying the new dynamic macroeconomic model.