DSGE models for a circular economy: a literature review

The circular economy (CE), as opposed to the more prevalent linear economy, has emerged largely from legislation and institutional efforts. Although many countries, particularly within the European Union (EU), have decided to progressively shift towards a CE, there is a lack of appropriate policy instruments and support opportunities to enable and expand circular activities. Dynamic stochastic general equilibrium (DSGE) models designed as forward-looking dynamic systems might be a solution for decision-makers to measure the changes and later implement appropriate policies. Therefore, this article aims to identify current state-of-the-art and the gaps in previous DSGE models applied for the CE. The results of the systematic literature review cover diversity of location, research directions, economic agents, dynamic shocks. This paper demonstrates that the CE topic is fragmentally modeled using the DSGE approach and the gaps of particular dynamic shocks (such as government policy and investment in technology) occur in DSGE literature.