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Lien Laureys, Mr. Roland Meeks, Boromeus Wanengkirtyo, and Gaston Gelos

multiple sources of disturbance. Little is known about how, if at all, monetary policy should operate to reduce financial volatility in this environment. But a recent paper by Debortoli and others (2018; hereafter, DKLN) offers reasons to suspect that a straightforward translation of monetary policy messages drawn from studies based on stylized model economies to an empirically-relevant setting may not be warranted. DKLN (2018) establish that in a standard medium-scale DSGE model, the optimal stabilization weight on output gap fluctuations is many times greater than in

Lien Laureys, Mr. Roland Meeks, and Boromeus Wanengkirtyo
We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilizing inflation, a measure of resource utilization, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions.
Semih Tumen, Deren Unalmis, Ibrahim Unalmis, and Ms. Filiz D Unsal

.3.686 Nordhaus , W. D. and J. Boyer ( 2000 ): Warming the World: Economic Models of Global Warming , Cambridge, MA : MIT Press . 10.7551/mitpress/7158.001.0001 Rehdanz , K. and D. J. Maddison ( 2005 ): “ Climate and Happiness, ” Ecological Economics , 52 , 111 – 125 . 10.1016/j.ecolecon.2004.06.015 Sahuc , J.-G. and F. Smets ( 2008 ): “ Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model, ” Journal of Money, Credit, and Banking , 40 , 505 – 521 . 10.1111/j.1538-4616.2008.00124.x

International Monetary Fund. European Dept.

, Paris . Skinner , J. , 1988 , “ The Welfare Cost of Uncertain Tax Policy ,” Journal of Public Economics , 37 ( 2 ), pp. 129 – 145 . 10.1016/0047-2727(88)90067-9 Zubairy , S. , 2014 , “ On Fiscal Multipliers: Estimates from a Medium Scale DSGE Model ,” International Economic Review , Vol. 55 , pages 169 – 195 . 10.1111/iere.12045 1 This section provides a brief description of the main features of the model. For a more detailed discussion, see Appendix I and Fournier (2019) . 2 See the Selected Issues Paper “ The Appropriate

Ms. Susan S. Yang, Todd B. Walker, and Eric M. Leeper

.09.003 Zubairy , S. , 2009 , “ On Fiscal Multipliers: Estimates from a Medium Scale DSGE Model ,” Manuscript ( Duke University ). * We thank Benedict J. Clements, Jason Harris, Robert King, Aart Kraay, Justin Yifu Lin, Joana Pereira, Christopher Sleet, Abdoul Wane, an anonymous referee, and participants at a World Bank seminar for helpful comments. Earlier versions were circulated under the title “Government Investment and Fiscal Stimulus in the Short and Long Runs.” Leeper: Department of Economics, Indiana University and NBER, eleeper@indiana.edu ; Walker

Mr. Alessandro Cantelmo and Mr. Giovanni Melina

. Princeton University Press , Princeton, NJ . Zubairy , S. ( 2014 ). On fiscal multipliers: Estimates from a medium scale DSGE model . International Economic Review , 55 : 169 – 195 . 10.1111/iere.12045 Appendix A Data We define the durables sector as the a composite of durable goods and residential investments whereas the nondurables sector comprises nondurables goods and services. Table A.1. Data Sources Series Definition Source Mnemonic DUR N Nominal Durable Goods BEA Table 2.3.5 Line 3

Francesco Furlanetto, Paolo Gelain, and Marzie Taheri Sanjani

Federal Reserve Act; this includes maximum employment, stable prices, and moderate long-term interest rates. 20 Literature on optimal monetary policy has been fruitful: JPT (2013), Fendoglu (2011) , Levin, Onatski, Williams, and Williams (2005) , Schmitt-Grohe and Uribe (2007) , and Christiano, Ilut, Motto, and Rostagno (2010) compute optimal, or Ramsey, monetary policy in medium-scale DSGE models. Debortoli, Maih, and Nunes (2011) also considers the loose commitment problem where policymaker’s degree of commitment is not constant. 21 The Taylor rule

Deren Unalmis, Ibrahim Unalmis, and Ms. Filiz D Unsal

the ECB and the Fed: An Investigation with a Medium Scale DSGE Model, Journal of Money, Credit, and Banking , Vol. 40 , No. 2-3 . Unalmis , D. , I. Unalmis and D.F. Unsal , 2009 . On the Sources of Oil Price Fluctuations, IMF Working Paper , No. 9285 . Williams , J.B. , 1936 . Speculation and the Carryover, Quarterly Journal of Economics , 50 , 436 – 55 . 10.2307/1882611 Williams , J.C. and B. Wright , 1982 . The Roles of Public and Private Storage in Managing Oil Import Disruptions, Bell Journal of Economics , 13