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.

scholarly journals Monetary and Fiscal Policy in the Presence of Informal Labour Markets: A DSGE Approach

2021 ◽  
Vol 12 (1) ◽  
pp. 213
Author(s):  
Omobola Adu ◽  
Philip Alege ◽  
Oluranti Olurinola
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Informal Economy ◽  
New Keynesian ◽  
Policy Shocks ◽  
Informal Labour ◽  
Short Run ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Monetary And Fiscal Policy

In this paper, we investigate the transmission mechanism of monetary and fiscal policy shocks on inflation and output in the presence of an informal economy in Nigeria. To achieve this, a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model is modified to include informality in the labour and product market. The model is estimated using the Bayesian technique and the findings shows that in the case of a monetary policy shock, formal output tends to decline, while there is an expansion in informal output, at least in the short-run. The results also reveal that a fiscal policy shock brings about an initial decline in informal output. Hence, it is imperative for policymakers to strive to formalise the informal sector in order to ensure the effectiveness of monetary policy.

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 Precise Estimates of the Unrecorded Economy

2012 ◽  
Vol 51 (4II) ◽  
pp. 505-516 ◽  
Author(s):  
M. Ali Kemal ◽  
Ahmed Waqar Qasim
Keyword(s):  
Economic System ◽  
Informal Economy ◽  
Formal Sector ◽  
Macroeconomic Policies ◽  
Policy Makers ◽  
Know How ◽  
The Government

Informal economy in Pakistan is the backbone of the economy. However, the problem is that we do not know how big it is due to non-availability of the precise estimates of unrecorded1 economy. Precise estimates of the unrecorded economy would help policy-makers to make better macroeconomic policies. If unrecorded economy becomes part of the recorded economy government can seek revenues from it and rest of the sectors may have to take lesser burden of taxes. This would be a win-win situation for the government and for those sectors that are part of the documented system. In return, by becoming part of the documented economic system the undocumented sector can enjoy all those benefits and incentives that are available to the formal sector.

scholarly journals HETEROGENEITY IN WAGE SETTING BEHAVIOR IN A NEW-KEYNESIAN MODEL

2019 ◽  
Vol 24 (6) ◽  
pp. 1512-1546
Author(s):  
Sylvester C. W. Eijffinger ◽  
Anderson Grajales-Olarte ◽  
Burak R. Uras
Keyword(s):  
New Keynesian ◽  
Wage Rigidity ◽  
Nominal Wage ◽  
Dsge Model ◽  
Wage Setting ◽  
Sticky Information ◽  
Bayesian Techniques ◽  
Us Economy ◽  
Output Fluctuations ◽  
Dynamic Stochastic

In this paper we estimate a New-Keynesian dynamic stochastic general equilibrium (NK DSGE) model with heterogeneity in price and wage setting behavior. In a recent study, Coibion and Gorodnichenko develop a DSGE model, in which firms follow four different types of price setting schemes: sticky prices, sticky information, rule-of-thumb, or flexible prices. We enrich Coibion and Gorodnichenko framework by incorporating heterogeneity in nominal wage setting behavior among households. We solve this DSGE model and estimate it using Bayesian techniques for the US economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. More importantly, we identify qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, which a standard NK model with only Calvo-type wage rigidity fails to achieve. We also show that modeling wage-rigidity heterogeneity—as opposed to standard Calvo wages—amplifies the macroeconomic output fluctuations resulting from a technology shock while it mitigates the output fluctuations following a monetary tightening.

On the Validity of the Theoretical Bases of Inflation Targeting and New Keynesian General Equilibrium Models

2012 ◽  
pp. 22-36
Author(s):  
J. Plushchevskaya
Keyword(s):  
General Equilibrium ◽  
Inflation Targeting ◽  
Dynamic Stochastic General Equilibrium ◽  
New Keynesian ◽  
Equilibrium Models ◽  
Macroeconomic Policies ◽  
Policy Regime ◽  
General Equilibrium Models ◽  
Developed Economies ◽  
Dynamic Stochastic

The latest world economic and financial crisis highlighted problems in macroeconomic policies pursued by developed economies as well as the necessity of searching for an effective regulatory framework. In particular, doubts have occurred in the indisputability of advantages of inflation targeting and its theoretical basis: the New Keynesian dynamic stochastic general equilibrium models. The reason for doubts lies mainly in the lack of confidence in the new neoclassical synthesis propositions which form the basis for the modern monetary theory and structural modelling. The article reveals close links between contemporary mainstream economics, inflation targeting and New Keynesian dynamic stochastic general equilibrium models, concentrates on controversial points of the theory which bring into question applicability of the monetary policy regime and the models, and finally, outlines further research agenda.

Macroeconomic Risks and Asset Pricing: Evidence from a Dynamic Stochastic General Equilibrium Model

2019 ◽  
Vol 65 (8) ◽  
pp. 3585-3604 ◽  
Author(s):  
Erica X. N. Li ◽  
Haitao Li ◽  
Shujing Wang ◽  
Cindy Yu
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Factor Model ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Cross Sectional ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Macroeconomic Risks

We study the relation between macroeconomic fundamentals and asset pricing through the lens of a dynamic stochastic general equilibrium (DSGE) model. We provide full-information Bayesian estimation of the DSGE model using macroeconomic variables and extract the time series of four latent fundamental shocks of the model: neutral technology shock, investment-specific technological shock, monetary policy shock, and risk shock. Asset pricing tests show that our model-implied four-factor model can explain a number of prominent cross-sectional return spreads: size, book-to-market, investment, earnings, and long-term reversal. The investment-specific technological shock and risk shock play the most important role in explaining those return spreads. This paper was accepted by Neng Wang, finance.

THE SIGNAL EXTRACTION PROBLEM REVISITED: A NOTE ON ITS IMPACT ON A MODEL OF MONETARY POLICY

2009 ◽  
Vol 14 (3) ◽  
pp. 405-426 ◽  
Author(s):  
Benjamin D. Keen
Keyword(s):  
Monetary Policy ◽  
Imperfect Information ◽  
Dynamic Stochastic General Equilibrium ◽  
New Keynesian ◽  
Policy Changes ◽  
Keynesian Model ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Future Policy ◽  
Sticky Wages

This paper develops a dynamic stochastic general equilibrium (DSGE) model with sticky prices and sticky wages, in which agents have imperfect information on the stance and direction of monetary policy. Agents respond by using Kalman filtering to unravel persistent and temporary monetary policy changes in order to form optimal forecasts of future policy actions. Our results show that a New Keynesian model with imperfect information and real rigidities can account for several key effects of an expansionary monetary policy shock: the hump-shaped increase in output, the delayed and gradual rise in inflation, and the fall in the nominal interest rate.

scholarly journals Application of the Bayesian New Keynesian DSGE Model to Polish Macroeconomic Data

2021 ◽  
Vol 32 (2) ◽  
pp. 140-153
Author(s):  
Janusz Sobieraj ◽  
Dominik Metelski
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Significant Degree ◽  
New Keynesian ◽  
Output Gap ◽  
Monetary Policy Shocks ◽  
Dsge Model ◽  
Nominal Interest Rates ◽  
Policy Shocks ◽  
Dynamic Stochastic

In the paper we estimate a simple New Keynesian Dynamic Stochastic General Equilibrium NK DSGE model on the basis of Polish macro data from the period 2000-2019. The model is specified similarly to Galí (2008) with the use of the Bayesian approach. The NK DSGE model combines the advantages of both structural models and time-series models and, therefore, shows a significant degree of alignment with empirical data. The Bayesian estimation is based on the prior distribution of the model input parameters, which are later compared with the posteriors. The results obtained allow for assessing the persistence of responses to technological, inflationary and monetary policy shocks. On the basis of the NK DSGE model, we formulate a perception of macroeconomic interactions, e.g. nominal interest rates’ association with inflation and the output gap. In other words, the NK DSGE model provides a better understanding of the relationship between interest rates, inflation and the output gap. This in turn makes it easier to understand the monetary policy response function.

scholarly journals Gendered Inequalities in the Informal Economy in Masvingo Urban of Zimbabwe

2018 ◽  
Vol 4 (9) ◽  
pp. 111-120
Author(s):  
Jeffrey Kurebwa
Keyword(s):  
Informal Economy ◽  
Formal Education ◽  
Case Study Research ◽  
Specific Reference ◽  
Gender Inequalities ◽  
Technological Advancement ◽  
Economic Policies ◽  
Structured Interviews ◽  
The Government ◽  
Political Economic

This paper focuses on the gendered inequalities in the informal economy of Zimbabwe with specific reference to Masvingo urban in Zimbabwe. The informal economy in Zimbabwe is made up of unregistered and unrecorded statistics and therefore is not registered, supported or regulated by the Government. Women trading in the informal economy have little or no access to organised markets, credit institutions, formal education and training institutions, public services and amenities. Qualitative research methodology was used for the research. A case study research of Masvingo urban in Zimbabwe was used, while data was collected using key informant interviews, semi-structured interviews, observations and documentary search. The findings of the study indicates that women in the informal economy are affected by environmental, political, economic, social and personal constraints. Women are concentrated in this sector due to the value system in the society; fewer skills required for the jobs in this sector, technological advancement, and the traditional roles assigned to them. The study concludes that gender-sensitive macro-economic policies are an important enabler to address gender inequalities in the informal economy as they shape the economic environment for women’s empowerment. The study recommends that local authorities should come up gender-responsive policies to enable women to operate in an environment that has decent infrastructure for vending, free from police and sexual harassment and adequate security.

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.

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