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on Dynamic General Equilibrium |
| By: | Jesús Fernández-Villaverde (Department of Economics, University of Pennsylvania); Pablo Guerrón-Quintana (Federal Reserve Bank of Philadelphia); Juan F. Rubio-Ramírez (Department of Economics, Duke University) |
| Abstract: | This paper compares the role of stochastic volatility versus changes in monetary policy rules in accounting for the time-varying volatility of U.S. aggregate data. Of special interest to us is understanding the sources of the great moderation of business cycle fluctuations that the U.S. economy experienced between 1984 and 2007. To explore this issue, we build a medium-scale dynamic stochastic general equilibrium (DSGE) model with both stochastic volatility and parameter drifting in the Taylor rule and we estimate it non-linearly using U.S. data and Bayesian methods. Methodologically, we show how to confront such a rich model with the data by exploiting the structure of the high-order approximation to the decision rules that characterize the equilibrium of the economy. Our main empirical findings are: 1) even after controlling for stochastic volatility (and there is a fair amount of it), there is overwhelming evidence of changes in monetary policy during the analyzed period; 2) however, these changes in monetary policy mattered little for the great moderation; 3) most of the great performance of the U.S. economy during the 1990s was a result of good shocks; and 4) the response of monetary policy to inflation under Burns, Miller, and Greenspan was similar, while it was much higher under Volcker. |
| Keywords: | DSGE models, Stochastic volatility, Parameter drifting, Bayesian methods |
| JEL: | E10 E30 C11 |
| Date: | 2010–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:10-015&r=dge |
| By: | Marco Ratto; Werner Roeger; Jan in 't Veld-European Commission |
| Abstract: | This paper presents a DSGE model with residential investment and credit-constrained households estimated with US data over the period 1980Q1-2008Q4. In order to better understand speculative movements of house prices, we model land as an exhaustible resource, implying that house prices have asset market characteristics.We conduct an event study for the US over the period 1999Q1-2008Q4 which has been characterised by a housing boom and bust and examine which shocks have contributed to the evolution of GDP and its components over this period. We devote special attention to the contribution of non-fundamental shocks to asset prices over this episode. |
| Keywords: | Using a DSGE model to look at the recent boom-bu DSGE model Housing Credit constraint collateral Bubbles Shocks Ratto Roeger in 't Veld European Economy. Economic Papers |
| JEL: | C51 E21 E22 E52 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0397&r=dge |
| By: | Francesca D'Auria; Andrea Pagano; Marco Ratto; Janos Varga |
| Abstract: | This paper calibrates the Roeger-Varga-Veld (2008) micro-founded DSGE model with endogenous growth for all EU member states using country specific structural characteristics and employs the individual country models to analyse the macroeconomic impact of various structural reforms. We analyse the costs and benefits of reforms in terms of fiscal policy instruments such as taxes, benefits, subsidies and administrative costs faced by firms. We find that less R&D intensive countries would benefit the most from R&D promoting and skill-upgrading policies. We also find that shifting from labour to consumption taxes, reducing the benefit replacement rate and relieving administrative entry barriers are the most effective measures in those countries which have high labour taxes and entry barriers. |
| Keywords: | Structural reforms, endogenous growth, DSGE modelling, EU member states, tax credits, tax shifts, entry barriers, human capital, D'Auria, Pagano, Ratto, Varga |
| JEL: | E32 E62 O30 O41 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0392&r=dge |
| By: | Jürgen Antony (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, The Netherlands); Torben Klarl (University of Augsburg, Department of Economics); Alfred Maussner (University of Augsburg, Department of Economics) |
| Abstract: | This paper is concerned with the role of firm heterogeneity under credit constraints for economic growth. We focus on firm size, innovativeness and credit constraints in a semi-endogenous growth model reflecting recent empirical findings on firm heterogeneity. It allows for an explicit solution for transitional growth and balanced growth path productivity as well as the growth maximizing firm heterogeneity. This enables us to draw inference about the impact of key policy parameters of the model on these quantities and to draw conclusions about firm and capital market related policies. |
| Keywords: | firm heterogeneity, credit constraints, firm size, SME, economic growth |
| JEL: | E5 O31 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:aug:augsbe:0311&r=dge |
| By: | Julia Lendvai; Werner Roeger |
| Abstract: | This paper studies external deficits in the Baltics between 1995 and 2007.It uses a calibrated small-open-economy dynamic general equilibrium model incorporating a financial accelerator to assess to what extent deficits can be explained by productivity growth, fall in spreads and increasing access to credit.Results suggest that the external deficit and other key macroeconomic aggregates can be well fitted by the equilibrium response of the model economy. Real convergence is found to have been dominant in the first half of the sample. More reversible financial factors became increasingly important towards the end of the period pointing to growing vulnerability. Positive growth outlook is also likely to have played a significant role in the build up of the foreign debt. Reversal scenarios confirm the need for a sizable readjustment. |
| Keywords: | Baltic States financial accelerator dynamic general equilibrium Roeger Lendvai External Deficits in the Baltics 1995 to 2007 Catching Up or Imbalances |
| JEL: | F41 C68 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0398&r=dge |
| By: | Benchimol, Jonathan (CES, University Paris 1 Panthéon-Sorbonne and Department of Economics, ESSEC Business School); Fourçans, André (ESSEC Business School, Department of Economics) |
| Abstract: | In this paper, we set up and test a model of the Euro zone, with a special emphasis on the role of money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. By using bayesian estimation techniques, we shed light on the determinants of output and inflation, but also of the interest rate, real money balances, flexible-price output and flexible-price real money balances variances. The role of money is investigated further. We find that its impact on output depends on the degree of agents’ risk aversion, increases with this degree, and becomes significant when risk aversion is high enough. The direct impact of the money variable on inflation variability is essentially minor whatever the risk aversion level, the interest rate (monetary policy) being the overwhelming explanatory factor. |
| Keywords: | Bayesian Estimation; DSGE Model; Euro Area; Money |
| JEL: | E31 E51 E58 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-10005&r=dge |
| By: | Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti |
| Abstract: | We study a dynamic general equilibrium model where innovation takes the form of the introduction new goods, whose production requires skilled workers. Innovation is followed by a costly process of standardization, whereby these new goods are adapted to be produced using unskilled labor. Our framework highlights a number of novel results. First, standardization is both an engine of growth and a potential barrier to it. As a result, growth in an inverse U-shaped function of the standardization rate (and of competition). Second, we characterize the growth and welfare maximizing speed of standardization. We show how optimal IPR policies affecting the cost of standardization vary with the skill-endowment, the elasticity of substitution between goods and other parameters. Third, we show that the interplay between innovation and standardization may lead to multiple equilibria. Finally, we study the implications of our model for the skill-premium and we illustrate novel reasons for linking North-South trade to intellectual property rights protection. |
| JEL: | F43 O31 O33 O34 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15958&r=dge |
| By: | Becker, Sascha; Nautz, Dieter |
| Abstract: | Recent monetary search models emphasize that the real effects of inflation via its impact on price dispersion depend on the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation-price dispersion nexus is predicted to be asymmetrically V-shaped which implies an optimal inflation rate above zero. For highly integrated markets, however, theory suggests that the impact of inflation on price dispersion disappears. Employing price data of the European Union member states, this paper is the first that empirically tests these implications of monetary search theory. -- |
| Keywords: | Inflation,Relative price variability,Monetary search models,European market integration |
| JEL: | E31 C23 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20102&r=dge |
| By: | Daron Acemoglu |
| Abstract: | I discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations. I argue that economic theory plays (should play) a central role in formulating models, estimates of which can be used for counterfactual and policy analysis. I discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions. I illustrate the main arguments using examples from recent work in development economics and political economy. |
| JEL: | B41 D50 O10 O12 P48 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15944&r=dge |
| By: | Patrick Bajari; Phoebe Chan; Dirk Krueger; Daniel Miller |
| Abstract: | Using data from the Panel Study of Income Dynamics (PSID) we specify, estimate and simulate a dynamic structural model of housing demand. Our model generalizes previous applied econometric work by incorporating realistic features of the housing market including non-convex adjustment costs from buying and selling a home, credit constraints from minimum downpayment requirements and uncertainty about the evolution of incomes and home prices. We argue that these features are critical for capturing salient features of housing demand observed in the PSID. After estimating the model we use it to simulate how consumer behavior responds to house price and income declines as well as tightening credit. These experiments are motivated by the U.S. recession starting in December of 2007 that saw large falls in home prices, large negative income shocks for many households and tightening credit standards. In the short run, relatively few households adjust their housing stock. Households respond instead by reducing non-housing consumption and reducing wealth because they wish to avoid losing their home and the associated adjustment costs. Households that adjust in the short run are those hit with a series of bad shocks, such as a negative income shock and a home price decline. A larger proportion of households do adjust their consumption in the long run, increasing their housing stock since housing is less expensive. However, such changes may occur several years after the shocks listed above. |
| JEL: | D12 E21 R21 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15955&r=dge |