The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.
The workshop was held in Washington during the week of April 26–30. The workshop consisted of a one-day miniconference on the use of DSGE models for policy analysis followed by four days of practical training, where participants were exposed to Bayesian estimation methods, techniques for doing formal welfare analysis, and a summary of the types of models that have been developed in the Research Department to support policy analysis at the IMF. The 104 conference participants represented 37 institutions from 22 countries. Fifteen participants were from academic institutions, 53 were from central banks (36 from industrial countries and 17 from emerging market economies), and the remainder were from the IMF and the World Bank.
Examples of DSGE models were presented at the first day of the workshop, Lawrence Christiano developed a DSGE model to study the Great Depression in the United States and concluded that a more accommodative monetary policy would have greatly reduced the severity of the Great Depression. Frank Smets provided an example of how Bayesian methods could be used to estimate DSGE models. Enrique Mendoza developed a DSGE model to understand the phenomena of “sudden stops” in capital flows to emerging market economies. He concluded that financial development that could alleviate collateral and working capital constraints could substantially improve macroeconomic performance. Michael Woodford presented a lecture on monetary policy under flexible exchange rate regimes and emphasized the importance of time consistency in designing monetary policy rules. Paolo Pesenti summarized a sample of the work on the Global Economy Model that was being done at the IMF. The presentations were followed by a round-table discussion where the panelists—Jarle Bergo, Ralph Bryant, Jordi Gali, Richard Harrison, Dale Henderson, Tiff Macklem, David Reifschneider, Tom Sargent, and Klaus Schmidt-Hebbel—commented on the papers and suggested extensions for the future. Generally, the panelists were encouraged by recent developments and the strong links that were being established between academic and policymaking institutions. However, they noted that more work would be needed to incorporate a more interesting role for fiscal policy into these models and to develop the necessary extensions for applying such models to emerging market economies.
Frank Schorfheide, Chris Sims, and Alejandro Justiniano provided an overview of Bayesian methods, including example programs that they developed to illustrate how these methods can be used in DYNARE, a software program developed by Michel Juillard and his team at CEPREMAP. Paolo Pesenti introduced participants to the theoretical structure of the Global Economy Model. Riccardo Colacito, Sagiri Kitao, and Yongseok Shin presented some examples that they developed to illustrate Bayesian estimation in DYNARE. Michael Kumhof presented his paper, “Fiscal Crisis Resolution: Taxation Versus Inflation.”
Tommy Sveen presented preliminary work on developing a version of the Global Economy Model to support monetary policy analysis at the Norges Bank. Nicoletta Batini and Dennis Botman gave two examples of incorporating fiscal policy into DSGE models and provided simulations of the crowding-out and spillover effects of government deficits. Ayhan Kose, Jaewoo Lee, and Alessandro Rebucci summarized their work in progress on the implications of international trade in goods and assets. Philippe Karam presented examples, developed with Stephane Adjemian and Alejandro Justiniano, of how to do Bayesian estimation on small models designed to support policy analysis. Selim Elekdag, Jinill Kim, and Ivan Tchakarov highlighted the importance of moving beyond linear approximations of models and showed how higher-order perturbation analysis could be used to conduct more informative formal welfare analysis of alternative policy rules.
All of the available papers, presentations, and example programs can be obtained by e-mailing Laura Leon at email@example.com. A special thanks to Laura Leon and Victoria Ashiru for running the conference so smoothly.