What does it do, what is it used for, why is it so popular, etc.
In: Economics
Not really ELI5, but I will try anyways.
It is easiest to think of DSGE as a tool for macro policy evaluation. For example, what happens to the economy if we lower income taxes? One might think that people just spend more on consumption since they have more disposable income but it is not that trivial since people react to the tax change by changing their working hours. For example people might work more since work is better reward but they might also lower their working hours since they can effort their lifestyle with less work. But those things may also affect other parts of the economy such as the capital stock or investments in an economy. But a changed capital stock affects future income and thus future income from labor. Such dynamic effects cannot be captured by static models and it is also hard to think through such effects. In addition the changed behavior of the economic actors cannot be captured by purely statistical models (this was the point of the Lucas-Critique).
Nowadays it is used for all kinds of macro policy evaluation, e.g. fiscal policy (the example above) or monetary policy. However, it has not fully phased statistical models or static models (which often have a nice closed-form solution).
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