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What Is Dynamic Macroeconomics?

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  • Written By: Sandi Johnson
  • Edited By: A. Joseph
  • Last Modified Date: 16 November 2016
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Dynamic macroeconomics is a concept within macroeconomics that considers and monitors various economic factors, expanded over a longer period of time and in differing environments than standard macroeconomics. Data compiled over time helps decision-makers spot historical trends, illustrate previous market responses and discern long-term growth patterns within similar economies. Over the course of multiple generations, influential factors such as pricing, fiscal policy, interest rates, gross domestic product and other variables can have a drastically different effect on economic growth than the changes seen within a single generation. Accordingly, the study of dynamic macroeconomics tracks such long-term data to accompany, disprove or quantify traditional economic forecasts.

Analytical tools, known as models, are a primary component in macroeconomics. Models such as dynamic stochastic general equilibrium (DSGE) also are described as dynamic. Rather than focusing on the time frame of information, such tools use the term "dynamic" to highlight changing variables. The use of this term in such models acknowledges and allows for concepts such as rational expectations and optimal choice as well as they way that changes in pricing structures affect expectations and consumer decisions.

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Macroeconomics, as a discipline, encompasses the study of an entire economy, whether it is local, regional, national or global. Factors such as gross domestic product, market fluctuations, employment, infrastructure and the effects of fiscal and monetary policies are just a few of the subtopics involved in the study of economies. The overriding goal of macroeconomics is to provide current data and projections so that business and governmental leaders can develop strategies for continued economic growth. As a part of the larger study of economies, dynamic macroeconomics tracks historical information over a longer period and with more if/then scenarios in an effort to improve the accuracy of economic projections.

In certain professional capacities, the term "dynamic macroeconomics" also applies to the evolution of macroeconomics as an area of study. Analytical tools, macroeconomic models and even macroeconomic theories have always been a subject of great debate among economists. Each era has ushered in changes to modern economic theories, bringing along new tools and models as the field develops. It could then be said that macroeconomics, as a profession and area of expertise, also is dynamic in the sense that the field changes over time to align with current schools of economic thought.

Whether seen as a specialty concept within macroeconomics or as a term used to describe modern macroeconomic theory, the key to understanding dynamic macroeconomics is understanding the time element and changing variables involved. Where macroeconomics monitors and aggregates recent observations of market changes, economic policies, pricing and supply, dynamic macroeconomics aggregates historical information and uses it to aid in determining the outcome of multiple scenarios. Such time-series interpretations of economic information are particularly useful for forecasting various government policy changes and other interventions that can span multiple generations.

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