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on Dynamic General Equilibrium |
| By: | Lawrence Christiano (Northwestern University, 633 Clark Street Evanston, IL 60208 Evanston, USA.); Roberto Motto (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Massimo Rostagno (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We augment a standard monetary DSGE model to include a banking sector and financial markets. We fit the model to Euro Area and US data. We find that agency problems in financial contracts, liquidity constraints facing banks and shocks that alter the perception of market risk and hit financial intermediation — ‘financial factors’ in short — are prime determinants of economic fluctuations. They have been critical triggers and propagators in the recent financial crisis. Financial intermediation turns an otherwise diversifiable source of idiosyncratic economic uncertainty, the ‘risk shock’, into a systemic force. JEL Classification: E3, E22, E44, E51, E52, E58, C11, G1, G21, G3. |
| Keywords: | DSGE model, Financial frictions, Financial shocks, Bayesian estimation, Lending channel, Funding channel. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101192&r=dge |
| By: | Cúrdia, Vasco (Macroeconomic and Monetary Studies Function); Finocchiaro, Daria (Research Department, Central Bank of Sweden) |
| Abstract: | This paper analyzes to what extent changes in monetary policy regimes influence the business cycle in a small open economy and investigates the impact of policy breaks on the estimation procedure. We estimate a DSGE model on Swedish data, explicitly taking into account the monetary regime change in 1993, from exchange rate targeting to inflation targeting. The results suggest that monetary policy reacted strongly to exchange rate movements in the former, and mostly to inflation in the latter. The external sector plays an important role in the economy and the international transmission mechanism is significantly affected by the choice of exchange rate regime. A counterfactual experiment that applies the inflation targeting policy rule on the disturbances from the exchange rate targeting period suggests that such a policy would have led to higher output and employment, but also to a depreciated currency, higher inflation and a more volatile economy. We also show evidence that ignoring the break in the estimation leads to spurious results for both the parameters associated with monetary policy as well as those that are policy-independent. |
| Keywords: | Bayesian estimation; DSGE models; target zone; inflation targeting; regime change |
| JEL: | C10 C50 E50 F40 |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0241&r=dge |
| By: | Alexandra Ferreira Lopes (Departamento de Economia, ISCTE); Tiago Sequeira e Catarina Roseta Palma (Departamento de Gestão e Economia, Universidade da Beira Interior; Departamento de Economia, ISCTE.) |
| Abstract: | We derive a model of endogenous growth with physical capital, human capital and technological progress through quality-ladders. We introduce welfare-decreasing pollution in the model, which can be reduced through the development of cleaner technologies. From the quantitative analysis of the model we show clear evidence that the new externality from technological progress to pollution considered in this model is sufficiently strong to induce underinvestment in R&D as an outcome of the decentralized equilibrium. An important policy implication of the main result of this article is a justification to subsidize the research in cleaner technologies. |
| Keywords: | Environmental Pollution, R&D, Social Capital, Human Capital, Economic Growth |
| JEL: | O13 O15 O31 O41 Q50 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:csh:wpecon:td09_2010&r=dge |
| By: | Acemoglu, Daron (Harvard); Aghion, Philippe (Institute for International Economic Studies, Stockholm University); Bursztyn, Leonardo (Harvard); Hemous, David (Harvard) |
| Abstract: | This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses “dirty” machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. |
| Keywords: | environment; exhaustible resources; directed technological change; innovation |
| JEL: | C65 O30 O31 O33 |
| Date: | 2010–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0762&r=dge |
| By: | Sandra Gomes (Bank of Portugal, Economic Research Department, Av. Almirante Reis 71, 1150-012 Lisbon, Portugal.); Pascal Jacquinot (European Central Bank, Directorate General of Research, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Massimiliano Pisani (Bank of Italy, Research Department, Via Nazionale 91, 00184 Rome, Italy.) |
| Abstract: | Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad. JEL Classification: C53, E32, E52, F47. |
| Keywords: | Open-economy macroeconomics, DSGE models, econometric models, policy analysis. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101195&r=dge |
| By: | Davide Furceri; Annabelle Mourougane |
| Abstract: | This paper examines the effects of fiscal policy on output in the euro area. For this purpose we develop a DSGE Fiscal Model with endogenous government bond yields to assess the impact of different fiscal policy shocks on output, its components and on government debt. The simulations suggest that fiscal policy is effective in supporting activity, especially in the short term. In particular, the largest fiscal multipliers are found for an increase in public investment, public consumption and a cut in the wage tax. The results are robust to different parameter calibrations and are economically significant. Amongst the different structural parameters, the share of liquidity constrained households and price persistence are found to be the ones which affect the most fiscal multipliers.<P>Les effets de la politique budgétaire sur la production : une analyse à partir d’un modèle DSGE<BR>Ce papier examine les effets de la politique budgétaire sur l?activité dans la zone euro. À cette fin, nous avons développé un modèle budgétaire DSGE dans lequel les rendements des obligations d?État sont endogènes et nous examinons l?effet de différents chocs budgétaires sur le PIB et ses composantes et sur la dette publique. Les simulations indiquent que la politique budgétaire permet de soutenir l?activité, en particulier sur le court terme. Plus précisément, les multiplicateurs budgétaires les plus larges sont associés à une augmentation de l?investissement public, de la consommation publique ainsi qu?à une baisse du taux d?imposition sur les salaires. Les résultats sont robustes à différentes valeurs des paramètres structuraux du modèle et sont économiquement significatifs. Parmi les différents paramètres structurels, la part des ménages qui rencontrent des contraintes de liquidité et les inerties au niveau des prix sont les paramètres qui affectent le plus les multiplicateurs fiscaux. |
| Keywords: | fiscal policy, debt sustainability, output, DSGE, politique budgétaire, soutenabilité de dette, activité, DSGE |
| JEL: | E62 H10 |
| Date: | 2010–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:770-en&r=dge |
| By: | António Antunes; Tiago Cavalcanti; Anne Villamil |
| Abstract: | This paper studies quantitatively how intermediation costs affect household consumption loans and welfare. Agents face uninsurable idiosyncratic shocks to labor productivity in a production economy with costly financial intermediation and a natural borrowing limit. Reducing intermediation costs leads to two effects: First, for a given interest rate, borrowing costs decrease, which improves the ability of agents to smooth consumption overtime. Second, the demand for loans increases, which increases the interest rate. The aggregate welfare gain of reducing intermediation costs from 3.927 percent (US level) to 1 percent is about 1.14 percent of equivalent consumption in the baseline economy for an endogenous interest rate and and 1.90 for an exogenous interest rate. The gains are distributed unevenly: households at the bottom wealth decile improve welfare by 3.96 and 5.86 percent of equivalent consumption, while those at the top decile have a welfare gain of 0.35 and 0.2 percent, when the interest rate is determined endogenously and exogenously, respectively. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:142&r=dge |
| By: | Rodney W. Strachan; Herman K. van Dijk |
| Abstract: | The empirical support for a real business cycle model with two technology shocks is evaluated using a Bayesian model averaging procedure. This procedure makes use of a finite mixture of many models within the class of vector autoregressive (VAR) processes. The linear VAR model is extended to permit cointegration, a range of deterministic processes, equilibrium restrictions and restrictions on long-run responses to technology shocks. We find support for a number of the features implied by the real business cycle model. For example, restricting long run responses to identify technology shocks has reasonable support and important implications for the short run responses to these shocks. Further, there is evidence that savings and investment ratios form stable relationships, but technology shocks do not account for all stochastic trends in our system. There is uncertainty as to the most appropriate model for our data, with thirteen models receiving similar support, and the model or model set used has significant implications for the results obtained. |
| JEL: | C11 C32 C52 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2010-522&r=dge |
| By: | Kyriakos C. Neanidis |
| Abstract: | This paper examines the e¤ect of humanitarian aid on the rates of fertility and economic growth in recipient countries. We develop a two-period overlapping generations model where reproductive agents face a non-zero probability of death in childhood. As adults, agents allocate their time to work, leisure, and child rearing activities of surviving children. Health status in adulthood exhibits “state dependence”as it depends on health in childhood. Humanitarian aid in‡uences the probability of survival to adulthood, health in childhood, and the time adults allocate to child rearing, giving rise to an ambiguous e¤ect on both the rates of fertility and growth. An empirical examination for the period 1973-2007 suggests that humanitarian aid has on average a zero e¤ect on both the fertility rate and the rate of per capita output growth. The …ndings are robust to a wide number of sensitivity considerations. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:139&r=dge |
| By: | Jan Gottschalk; Jihad Dagher; Rafael Portillo |
| Abstract: | We use a calibrated multi-sector DSGE model to analyze the likely impact of oil windfalls on the Ghanaian economy, under alternative fiscal and monetary policy responses. We distinguish between the short-run impact, associated with demand-related pressures, and the medium run impact on competitiveness and growth. The impact on inflation and the real exchange rate could be moderate, especially if the fiscal authorities smooth oil-related spending or increase public spending’s import content. However, a policy mix that results in both a fiscal expansion and the simultaneous accumulation of the foreign currency proceeds from oil as international reserves—to offset the real appreciation—would raise demand pressures and crowd-out the private sector. In the medium term, the negative impact on competitiveness—resulting from â€Dutch Disease†effects—could be small, provided public spending increases the stock of productive public capital. These findings highlight the role of different policy responses, and their interaction, for the macroeconomic impact of oil proceeds. |
| Keywords: | Demand , Economic models , Exchange rate appreciation , Fiscal policy , Ghana , Government expenditures , Inflation , Monetary policy , Nonoil sector , Oil production , Oil revenues , Reserves accumulation , |
| Date: | 2010–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/116&r=dge |
| By: | Aghion, P.; Hemous, D.; Kharroubi, E. |
| Abstract: | This paper evaluates whether the cyclical pattern of fiscal policy can affect growth. We first build a simple endogenous growth model where entrepreneurs can invest either in short-run projects or in long-term growth enhancing projects. Long-term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short-run profits. By increasing firms' market size in recessions, a countercyclical fiscal policy will boost investment in productivity-enhancing long-term projects, and the more so in sectors that rely more on external financing or which display lower asset tangibility. Second, the paper tests this prediction using Rajan and Zingales (1998)'s diff-and-diff methodology on a panel data sample of manufacturing industries across 17 OECD countries over the period 1980-2005. The evidence confirms that the positive effects of a more countercyclical fiscal policy on value added growth, productivity growth, and R&D expenditure, are indeed larger in industries with heavier reliance on external finance or lower asset tangibility. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucllon:http://eprints.ucl.ac.uk/17759/&r=dge |
| By: | Marla Ripoll; Juan Carlos Cordoba |
| Abstract: | . . . |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:395&r=dge |
| By: | Marla Ripoll; Juan Carlos Cordoba |
| Abstract: | . . . |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:392&r=dge |