Grounding Large Language Models in DSGE Simulators for Policy Generation and Forecasting
This study addresses the lack of dynamic consistency verification and long-horizon credit assignment mechanisms when large language models (LLMs) formulate economic policies. To overcome these limitations, this work proposes a closed-loop interactive framework that embeds instruction-tuned LLMs within a Dynamic Stochastic General Equilibrium (DSGE) simulator. Policy actions are optimized using the Proximal Policy Optimization (PPO) reinforcement learning algorithm, thereby establishing an evaluation paradigm grounded in economic consequences rather than textual plausibility. This approach effectively resolves the challenge of delayed reward propagation, enabling dynamic simulation and rigorous assessment of policy effects under historical shocks. Ultimately, this research provides a quantifiable and verifiable pathway for AI-driven macroeconomic decision-making.