scholarly journals The stabilizing effects of economic policies in Spain in times of COVID-19

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
J.E. Boscá ◽  
R. Doménech ◽  
J. Ferri ◽  
J.R. García ◽  
C. Ulloa
Keyword(s):  
Rational Expectation ◽  
Supply And Demand ◽  
Economic Policies ◽  
Dsge Model ◽  
Spanish Economy ◽  
Structural Shocks ◽  
Content Type ◽  
Supply And Demand Shocks ◽  
Practical Tool ◽  
Dynamic Stochastic

Purpose This paper aims to analyse the stabilizing macroeconomic effects of economic policies during the COVID-19 crisis in Spain. Design/methodology/approach The contribution of the structural shocks that explain the behaviour of the main macroeconomic aggregates during 2020 are estimated, and the effects of economic policies are simulated using a dynamic stochastic general equilibrium (DSGE) model estimated for the Spanish economy. Findings The results highlight the importance of supply and demand shocks in explaining the COVID-19 crisis. The annual fall in gross domestic product (GDP) moderates at least by 7.6 points in the most intense period of the crisis, thanks to these stabilizing policies. Finally, the potential effects of Next Generation EU in the Spanish economy are estimated. Assuming that Spain may receive from the EU between 1.5 and 2.25 percentage points (pp) of GDP, activity could increase to between 2 and 3 pp in 2024. Originality/value To the best of the authors’ knowledge, the exercises and findings are original. All these results show the usefulness of a DSGE model, such as the estimated rational expectation model for Spain, as a practical tool for the applied economic analysis, the macroeconomic assessment of economic policies and the understanding of the Spanish economy.

scholarly journals Liquidity, interest rates and house prices in the euro area: a DSGE analysis

2016 ◽  
Vol 9 (1) ◽  
pp. 4-25 ◽  
Author(s):  
Margarita Rubio ◽  
José A. Carrasco-Gallego
Keyword(s):  
Interest Rates ◽  
Monetary Union ◽  
Euro Area ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Dsge Model ◽  
Content Type ◽  
The Core ◽  
Dynamic Stochastic

Purpose This study aims to build a two-country monetary union dynamic stochastic general equilibrium (DSGE) model with housing to assess how different shocks contributed to the increase in housing prices and credit in the European Economic and Monetary Union. One of the countries is calibrated to represent the core group in the euro area, while the other one corresponds to the periphery. Design/methodology/approach In this paper, the authors explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, they analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to both economies. Findings The authors find that a combination of an increase in liquidity in the euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, contributed to an increase in house prices in the euro area and a stronger credit growth in the peripheral economies. Originality/value This paper represents the theoretical counterpart to empirical studies that show, through macroeconometric models, the interrelation between liquidity and other shocks with house prices. Using a DSGE model with housing, the authors disentangle the mechanisms behind these empirical findings.

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.

scholarly journals State of Shocks Synchronization among Members of the GCC

2017 ◽  
Vol 8 (1) ◽  
pp. 15
Author(s):  
Ashraf Nakibullah
Keyword(s):  
Supply And Demand ◽  
Aggregate Demand ◽  
Oil Price ◽  
Model Specification ◽  
Structural Shocks ◽  
Demand Shocks ◽  
Gcc Countries ◽  
Aggregate Supply ◽  
Supply And Demand Shocks ◽  
Svar Model

This paper examines fluctuations of aggregate supply and demand shocks across the GCC countries. It argues that the world oil price influences aggregate demand and supply of these countries. Thus, in contrast to other studies, a SVAR model is used to identify structural shocks by including the oil price. The aggregate supply and demand shocks are then analyzed. The correlations of supply shocks among the member countries are either negative or low positive. Similarly, the correlations of demand shocks, except few pairs of countries, are also negative and low positive. Thus, shocks are not synchronized. These results are different than the results found in other similar studies probably due to the model specification. The implication of the findings is that the GCC countries would find it difficult to adjust supply and demand shocks if they form their aspired Gulf Monetary Union.

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 Macroeconomic Policy Effectiveness and the Informal Economy in Nigeria: A DSGE Approach

2020 ◽  
Vol 11 (6) ◽  
pp. 51
Author(s):  
Omobola Adu ◽  
Philip Alege ◽  
Oluranti Olurinola
Keyword(s):  
Informal Economy ◽  
Macroeconomic Policy ◽  
New Keynesian ◽  
Economic Policies ◽  
Dsge Model ◽  
Macroeconomic Policies ◽  
Formal Economy ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
The Government

Evaluating the approach and conduct of macroeconomic policy is crucial towards the provision of effective economic policies that addresses business cycles. However, to properly evaluate the effectiveness of macroeconomic policies, there is the need to pay attention to the structure of the economy. In Nigeria, there is a particular case for the introduction of informality in macroeconomic models. Hence, this study presents a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) Model featuring an informal sector in order to understand how the presence of informality affects the effectiveness of macroeconomic policies in Nigeria. The Bayesian estimation of the DSGE model provides evidence that the informal economy tends to play a buffer role or an absorbing role in reducing the effectiveness of a monetary policy shock in contracting output in comparison to an economy without informality. Therefore, this study recommends that with the aim of limiting the role of the informal economy towards absorbing some of the effects of shocks to the domestic economy, the government needs to implement market-friendly policies that would help merge the informal economy with the formal economy.

How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Seyyed Reza Nakhli ◽  
Monireh Rafat ◽  
Rasul Bakhshi Dastjerdi ◽  
Meysam Rafei
Keyword(s):  
Open Economy ◽  
Economic Effect ◽  
Current Paper ◽  
Dsge Models ◽  
Dsge Model ◽  
Content Type ◽  
Macroeconomic Variables ◽  
The World ◽  
Dynamic Stochastic ◽  
The Government

PurposeThe purpose of the current paper is to analyze the simultaneous effects of oil sanctions and financial sanctions on Iran's macroeconomic variables in a small open economy in the dynamic stochastic general equilibrium (DSGE) framework.Design/methodology/approachA DSGE model with the new Keynesian approach has been designed for the above mentioned purpose giving consideration to households, production, trade, oil, government and central bank sectors. All of the parameters were calibrated by using geometric means of macroeconomic variables in 2004–2017 as the steady-state values of the variables in the static model.FindingsAmplifying the intensity of the oil sanctions reduces oil production due to decreasing investment, technology and export of oil and reduces the central bank's foreign reserves ratio to the money base that leads to an increasing exchange rate. Furthermore, oil sanctions decrease the government revenues due to a decrease in oil export and by the government imposing an expansionary fiscal policy in the form of increasing current expenditure and preserving construction expenditure to prevent deepening the recession, which causes budget deficit and then the issue of more bonds with a higher nominal interest rate. On the other hand, financial sanctions raise transaction costs and marginal costs in the trade sectors that lead to inflation and a decrease in nonoil export and various kinds of imports. Due to inflation and uncertainty, consumption of a household increases and investment expenditure of a household decreases.Originality/valueTo the best of the author's knowledge, few studies in the world have analyzed the economic effect of the sanctions in the framework of DSGE models. There is no study in Iran to date which investigates the effects of the sanctions in the form of a DSGE model. So, this paper is the first study in Iran and one of the few studies in the world using a DSGE model for analyzing the effects of sanctions. Imposing three kinds of oil sanctions in addition to a financial sanction is another innovation of the current paper.

The “Backus-Smith” puzzle, non-tradable output, and international business cycles

2016 ◽  
Vol 33 (4) ◽  
pp. 532-552
Author(s):  
Soojae Moon
Keyword(s):  
Product Differentiation ◽  
Dynamic Responses ◽  
International Business Cycles ◽  
Specific Productivity ◽  
Intermediate Goods ◽  
Dsge Model ◽  
Content Type ◽  
Productivity Shock ◽  
Tradable Sector ◽  
Dynamic Stochastic

Purpose This paper aims to examine the effects of adding non-tradable sector and trade in intermediate goods sector and their impact on the “Backus-Smith” (BS) puzzle and the features of the non-tradable output. Conventional international real business cycle models show that the real exchange rate and the terms of trade are positively correlated to the relative consumption movement between the home and foreign economies when there is a total factor productivity shock, whereas the correlation in the data is negative. The author develops a two-country, dynamic, stochastic and general equilibrium (DSGE) model with staggered price setting in the non-tradable sector and international trade in intermediate goods sector because of product differentiation in a high-asset market frictions situation. Design/methodology/approach In this paper, DGSE simulation and calibration are performed using Matlab with Dynare. Findings When the world economy has positive country-specific productivity shock, the benchmark model with non-tradable sector and intermediate goods sector successfully solves the BS puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output. Originality/value The paper investigates the effects of incorporating non-tradable sector and trade in interemediate goods sector to standard two-country DSGE model through simulation and calibration.

scholarly journals Managing Macrofinancial Risk

2020 ◽  
Vol 20 (151) ◽  
Author(s):  
Tobias Adrian ◽  
Francis Vitek
Keyword(s):  
Goodness Of Fit ◽  
Banking Sector ◽  
Joint Analysis ◽  
Conditional Heteroskedasticity ◽  
Dsge Model ◽  
Macroprudential Policy ◽  
Structural Shocks ◽  
Financial Cycle ◽  
State Dependent ◽  
Dynamic Stochastic

We augment a linearized dynamic stochastic general equilibrium (DSGE) model with a tractable endogenous risk mechanism, to support the joint analysis of monetary and macroprudential policy. This state dependent conditional heteroskedasticity mechanism specifies the conditional variances of structural shocks as functions of the business or financial cycle. The resultant heteroskedastic linearized DSGE model preserves the satisfactory simulation and forecasting performance of its nested homoskedastic counterpart for the conditional means of endogenous variables, while substantially improving its goodness of fit to their conditional distributions. In particular, the model matches the key stylized facts of growth at risk. Accounting for state dependent conditional heteroskedasticity makes it optimal for monetary policy to respond more aggressively to the business cycle, and for macroprudential policy to manage the resilience of the banking sector more actively over the financial cycle.

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