scholarly journals TECHNOLOGY SHOCKS AND BUSINESS CYCLES IN INDIA

2017 ◽  
Vol 23 (5) ◽  
pp. 1721-1756 ◽  
Author(s):  
Shesadri Banerjee ◽  
Parantap Basu
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Emerging Market ◽  
Small Open Economy ◽  
Annual Data ◽  
Technology Shocks ◽  
Demand Side ◽  
Aggregate Fluctuations ◽  
Dsge Model ◽  
Dynamic Stochastic

In this paper, we develop a small open economy New Keynesian dynamic stochastic general equilibrium (DSGE) model to understand the relative importance of two key technology shocks, Hicks neutral total factor productivity (TFP) shock and investment specific technology (IST) shock for an emerging market economy like India. In addition to these two shocks, our model includes three demand side shocks such as fiscal spending, home interest rate, and foreign interest rate. Using a Bayesian approach, we estimate our DSGE model with Indian annual data for key macroeconomic variables over the period of 1971–2010, and for subsamples of pre-liberalization (1971–1990) and post-liberalization (1991–2010) periods. Our study reveals three main results. First, output correlates positively with TFP, but negatively with IST. Second, TFP and IST shocks are the first and the second most important contributors to aggregate fluctuations in India. In contrast, the demand side disturbances play a limited role. Third, although TFP plays a major role in determining aggregate fluctuations, its importance vis-à-vis IST has declined during the post liberalization era. We find that structural shifts of nominal friction and relative home bias for consumption to investment in the post-liberalization period can account for the rising importance of the IST shocks in India.

scholarly journals A small open economy DSGE model with workers' remittances

2020 ◽  
Vol 47 (6) ◽  
pp. 1339-1361
Author(s):  
Muhammad Rehman ◽  
Sajawal Khan ◽  
Zafar Hayat ◽  
Faruk Balli
Keyword(s):  
Open Economy ◽  
Emerging Market ◽  
Small Open Economy ◽  
Trade Deficit ◽  
Current Account Balance ◽  
Emerging Market Economies ◽  
Dsge Model ◽  
Content Type ◽  
Market Economies ◽  
Dynamic Stochastic

PurposeIn this paper, the authors develop and estimate a small open economy dynamic stochastic general equilibrium (DSGE) model with an enriched micro-founded specification to account for foreign remittances, an important source that helps bridge the trade gap in many developing and emerging market economies.Design/methodology/approachAlthough the authors’ specification provides a general frame for the analysis of the role of workers' remittances, they motivate and calibrate the model with specific focus on Pakistan, where most of the trade deficit is met through the remittance channel.FindingsThe results indicate that a negative shock to workers' remittances hampers real growth via decreased consumption and imported investment goods, while it builds pressure on exchange rate and hence worsens current account balance. These results indicate that too much dependence on workers' remittances to help meet foreign exchange deficits may potentially leave the economy in doldrums in case sizable negative shocks occur to the flow of foreign remittances.Originality/valueThe authors develop and estimate a small open economy DSGE model with an enriched micro-founded specification to account for foreign remittances, an important source that helps bridge the trade gap in many developing and emerging market economies.

scholarly journals The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Phuong V. Nguyen
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Research Paper ◽  
New Keynesian ◽  
Dsge Model ◽  
Content Type ◽  
Business Cycle Fluctuations ◽  
Dynamic Stochastic ◽  
The Business Cycle

PurposeThe primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.Design/methodology/approachA SOE-NK-DSGE model—Bayesian estimation.FindingsThis paper analyzes the sources of the business cycle fluctuations in Vietnam.Originality/valueThis research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

Technology Shocks and Non-stationary Hours in Emerging Countries and DSVAR

2020 ◽  
Vol 14 (2) ◽  
pp. 129-163
Author(s):  
Sevgi Coskun
Keyword(s):  
Unit Root ◽  
Emerging Market ◽  
Simulated Data ◽  
Jel Classification ◽  
Technology Shocks ◽  
Impulse Responses ◽  
Dsge Model ◽  
Hours Worked ◽  
Long Run ◽  
Dynamic Stochastic

We test a standard DSGE (Dynamic Stochastic General Equilibrium) model on impulse responses of hours worked and real GDP after technology and non-technology shocks in emerging market economies (EMEs). Most dynamic macroeconomic models assume that hours worked are stationary. However, in the data, we observe apparent changes in hours worked from 1970 to 2013 in these economies. Motivated by this fact, we first estimate a structural vector autoregression (SVAR) model with a specification of hours in difference (DSVAR) and then set up a DSGE model by incorporating permanent labour supply (LS) shocks that can generate a unit root in hours worked, while preserving the property of a balanced growth path. These LS shocks could be associated with very dramatic changes in LS which look permanent in these economies. Hence, the identification restriction in our models comes from the fact that both technology and LS shocks have a permanent effect on GDP yet only the latter shocks have a long-run impact on hours worked. For inference purposes, we compare empirical impulse responses based on the EMEs data to impulse responses from DSVARs run on the simulated data from the model. The results show that a DSGE model with permanent LS shocks that can generate a unit root in hours worked is required to properly evaluate the DSVAR in EMEs as this model is able to replicate indirectly impulse responses obtained from a DSVAR on the actual data. JEL Classification: C32, E32

scholarly journals DSGE Model Of A Small Open Economy: France

2010 ◽  
Vol 26 (3) ◽  
Author(s):  
Nabil Ben Arfa
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
External Shocks ◽  
Dsge Model ◽  
Exogenous Shocks ◽  
French Economy ◽  
Transmission Mechanisms ◽  
Trading Partners ◽  
The Usa ◽  
Dynamic Stochastic

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: black; font-size: 10pt; mso-ansi-language: EN-GB;" lang="EN-GB"><span style="font-family: Times New Roman;">In this paper we asses the effects and the transmission mechanisms of domestic and external shocks (we take a productivity shock associated to an imported energy shock) on the macroeconomic variables of a small open economy, using a dynamic stochastic general equilibrium model. We estimate a DSGE model in an open economy: France. In a first step, we begin by studying the cyclical features of the French economy, those of its main trading partners and the USA; this exercise enables us to make comparisons between France and its European neighbours. Once the facts are established, we will describe our model, its main features, then we solve it, make calibration and check the effects of exogenous shocks on the economic variables through the response impulse functions and the variance decomposition. Finally, we make comparison between the model&rsquo;s statistical moments of order two and those related to real facts in order to assess the validity of the model. It appears from our investigation, a significant correlation of the French cyclical characteristics with those of its neighbours. The France economy is also more vulnerable to technology shocks than to price of imported energy shocks.</span></span></p>

scholarly journals Three essays on bayesian analysis of nonlinear DSGE models

2019 ◽  
Author(s):  
◽  
Sanha Noh
Keyword(s):  
Decision Making ◽  
Linear Model ◽  
Open Economy ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Dsge Models ◽  
Dsge Model ◽  
Productivity Shock ◽  
Dynamic Stochastic ◽  
The Impact

The 2008 financial crisis has highlighted the importance of nonlinear features of our economy including risks, uncertainty shocks, rare disasters, structural changes, zero-lower bound, and occasionally binding constraints. Macroeconomists have tried to build nonlinear models to analyze these interesting features and take the models to the data. Dynamic Stochastic General Equilibrium (DSGE) model that essentially takes into account dynamic optimal decision making of households, firms, and government is one of the useful tools to deal with these issues. In the model, there are various random shocks causing the macroeconomic variables such as GDP, consumption, and investment to fluctuate over time. Above all things, the nonlinear approximation of the model allows us to capture the impact of risk on decision making. The focus of this dissertation is to provide a novel Bayesian estimation procedure for the estimation of nonlinear DSGE model and apply the proposed methodologies to analyze some nonlinear issues related to DSGE models. ... In the third chapter, I investigate a real business cycle (RBC) model for a small open economy by estimating the model solved up to second order. The higher order approximation more closely approximates the original model than the linear approximation. In this study, I evaluate the likelihood of the nonlinear model using the Gaussian mixture a lter (GMF) and employ the GMF within the MCMC algorithm. From the estimation results of the quadratic approximation, I obtain the following implications for a small open economy: First, the quadratic RBC model with financial frictions does a good job at identifying the parameters of the nonstationary productivity shock process. Second, the observed data favor the quadratic benchmark RBC and financial-friction models over the linear models. Third, the quadratic RBC model with financial frictions does a better job at capturing serial correlations of the observed data than the linear model with financial frictions. Fourth, contrary to the linear model with financial frictions, a nonstationary productivity shock in the quadratic model plays an important role in explaining Argentine economic fluctuations.

scholarly journals Monetary Policy Rule and Taylor Principle in Mongolia: GMM and DSGE Approaches

2020 ◽  
Vol 8 (4) ◽  
pp. 71
Author(s):  
Hiroyuki Taguchi ◽  
Ganbayar Gunbileg
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Small Open Economy ◽  
Policy Rule ◽  
Dsge Model ◽  
Gmm Estimation ◽  
Monetary Policy Rule ◽  
Dynamic Stochastic

This article aims to examine the monetary policy rule under an inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and a New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified an inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of an inflation targeting.

scholarly journals The Public Expenditures and Economic Growth: DSGE model for Bosnia and Herzegovina

2016 ◽  
Vol 6 (1) ◽  
pp. 68
Author(s):  
Nikolina Bošnjak
Keyword(s):  
Economic Growth ◽  
General Equilibrium ◽  
Bosnia And Herzegovina ◽  
Open Economy ◽  
Small Open Economy ◽  
Main Tool ◽  
Public Expenditures ◽  
Dsge Models ◽  
Dsge Model ◽  
Dynamic Stochastic

The DSGE (Dynamic Stochastic General Equilibrium) methodology attempts to explain the behavior of aggregate economic phenomena, such as economic growth, business cycle, and the effects of monetary and fiscal policy, using macroeconomic models derived from microeconomic foundations. DSGE models study the economy evolution (dynamics) over time. They take into consideration the fact that economy may be affected with random (stochastic) shocks. Still, they include all markets in the economy and assume that those markets balance out rapidly (general equilibrium). DSGE models have become the main tool of macroeconomic analysis, and until now, a huge number of different DSGE models have been developed. They are used for forecasting, different economic policies analysis and giving policy advices. Due to data scarcity and lack of knowledge, indevelopment and many other reasnos, until now there was no application of DSGE models to Bosnia and Herzegovina case. That is why we were motivated to calibrate a small size DSGE model for Bosnia and Herzegovina. In this research we will calibrate a small open economy DSGE model for Bosnia and Herzegovina and use its results to give some advices for economic growth of Bosnia and Herzegovina improvement. The special attention will be given to Public expenditures and TFP influence on Bosnian macroeconomic variables.

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