Questions tagged [dsge]
DSGE - Dynamic Stochastic General Equilibrium models.
79
questions
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11 views
Why do investment adjustment and capital adjustment costs yield different dynamics?
Both the Business Cycle and DSGE literature find that Investment adjustment costs and capital adjustment costs give rise to different dynamics for investment, output, consumption etc. Investment ...
3
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0answers
29 views
Deriving the New Keynesian Phillips Curve (NKPC)
I have a question regarding the NKPC. I would like to know if it is possible to derive the NKPC from a sticky prices model, without making assumptions regarding the production function firms face. I ...
2
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2answers
198 views
Ultra simple DSGE to implement
I want to create a DSGE model in Python. I want to build it myself to help me understand it (not just use a library)
Can someone direct me to a very simple model which would be straightforward to ...
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0answers
40 views
Inflation in Equilibrium
Suppose we have the following market-clearing condition for the goods market within a New-Keynesian setting:
$$
c_t = (1-\alpha)(1-\frac{\phi}{2}\pi_t^2)y_t + \alpha (1-\frac{\phi}{2}\pi_{t-1}^2)y_{t-...
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0answers
30 views
Problem to find steady state when I assume Y=1
I am trying to do a DSGE model in Matlab, I have all the steady state equations on paper and pencil but I fail to find values for all variables.
Indeed, since I have constant return to scale, I have ...
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0answers
35 views
Forecast from DSGE
My basic understanding of a DSGE is that it comuptes the equilibrium values for GDP, inflation, etc and then shows you how these would respond to different hypothetical exogeneous shocks.
How do you ...
3
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0answers
22 views
Derive optimal wage in New Keynesian-Calvo wage stickiness
Following Costa, 2016 in page 96, developing the labor variety optimal wage decided by the household, the FOC is:
$$0=E_t\sum_{i=0}^\infty(\beta\theta_w)^{t+i}\left\{\psi_W\left[L_{t+i}\left(\frac{W_{...
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0answers
26 views
Solving complex RBC/DSGE models
Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible?
I am a ...
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16 views
Increase in money supply when price are flexible in the basic new keynesian model
I would like to know what would be the effect on price and quantities of an increase in money supply in the basic new keyensian model. What happen if price are fully flexible ? What if prices are ...
2
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1answer
35 views
How to define the natural rate output
I'm following Woodford's Interest & Prices to derive the microfundations for a New Keynesian model with staggereed prices.
I defined the utility function and disutility function (1.1 at page 144) ...
1
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1answer
52 views
Basic New Keynesian model with flexible price
I would like to know what would be the response of variables in the Basic New Keynesian model but with flexible prices (ie not with Calvo pricing). For example I have troubles to see how having ...
1
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0answers
21 views
functional form for a consumption shock
In a DSGE model, how can I add a disturbance/shock in the consumption of households?
For example given my utility function
$$ U(C,H) = \frac{C_t^{1-\theta}}{1-\theta} - \frac{B}{\eta} H_t^\eta,$$ ...
1
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1answer
54 views
Search and Matching model with 2 agents?
I would like to know if you know any model with Search and matching framework (Mortenses-Pisarides style) with 2 types of workers (like Ricardian and rule of thumb consumers for exemple) ? I would ...
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0answers
17 views
Dynamic model calibration of rate parameters
Let's say I have this dynamic model where $\delta$ is the depreciation rate of capital $K_t$:
$$K_{t+1}=sY_t+(1-\delta)K_t$$
Now, if I'm going to make some analysis where I state time $t$ as being in ...
2
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1answer
28 views
Is IS-LM still used in research or we learn it just to understand basic macro?
Since i had my "Introduction to advanced macroeconomics" and discovered DSGE i've been wondering if IS-LM is used in research, i know it was used in the 80's or so, but now?
1
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1answer
50 views
How can difference equations with an infinite summation be represented in matrix form?
I have derived the microeconomic foundations of a dsge model and I've obtained the IS and NKPC. I would like to represent them in matrix form to study the system. However the problem is that both ...
2
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0answers
28 views
Derivation question: Gali (2015), chapter 5, equation 25
I am wondering how Gali derived equation (25) in chapter 5 of his book Monetary Policy, Inflation, and the Business Cycle (2015).
We have equation (21):
$$
\vartheta \hat{x}_{t} = -\kappa \hat{p}_{t} +...
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0answers
11 views
Scope of DSGE models
Since DSGE models are a type of growth models that focus on assessing short term evaluation of economic fluctuations. Most of the models that I have seen are policy related, that assess the effect of ...
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1answer
34 views
Elasticity of intertemporal sustitution with composite CRRA function
In the usual CRRA $\frac{c^{1-\sigma}-1}{1-\sigma}$ function we have that the intertemporal elasticity of sustitution $\partial\frac{c_{t+1}}{{c_{t}}{\partial r}}$ is $\frac{1}{\sigma}$.
But how can ...
3
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1answer
45 views
Literature on DSGE models featuring a financial sector
I recently read a ECB primer on DSGE models featuring the financial sector and became interested in the field. I also started to read some of the earlier literature in that field (e.g. Gertler & ...
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0answers
21 views
Deriving log-linearized equilibrium in Galí (2019)
I am reading the Paper "The effects of a money-financed fiscal stimulus" by Galí (2019).
I am trying to derive the log-linearized equilibrium as given in equations (15)-(22). I believe I am ...
1
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1answer
25 views
Are business cycle fluctuations usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?
I wonder if business cycle fluctuations are usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?
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0answers
7 views
What would it mean for a parameter region to be E-stable but undeterminate?
What would it mean for a parameter region for a dynamic system to be E-stable, but indeterminate?
E-stable: it's stable under learning... so this means, once in equilibrium, you stay there? Or does it ...
2
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0answers
24 views
determinacy vs. indeterminacy of equilibria in dynamic systems
As explained in Hommes (2018), equilibria in dynamic systems, like DSGE models, can either be determinate or indeterminate. A REE (rational expectations equilibrium) is determinate when there exists a ...
2
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1answer
34 views
What is meant by the abbreviation 'MSV solution', used in the context of DSGE modeling?
What is meant by the abbreviation MSV solution, used in the context of adaptive learning in DSGE modeling? E.g. see Bullard and Mitra (2002)
minimum state variable (MSV) solutions it is in full, but ...
0
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2answers
74 views
Expected inflation in the real interest rate equation
Real interest rate = Nominal rate - Expected inflation
In the above equation, in a quarterly data-set, which expected inflation shall be used? next quarter (q+1) or the same quarter of next year (q+4)...
2
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0answers
44 views
Micro foundations of the Phillips Curve
In a typical NKPC:
$Inflation_t = \alpha_1 Inflation_{t-1} + (1-\alpha_1) \mathbb{E}_tInflation_{t+1} + \alpha_2 RealMarginalCost + \epsilon_t$
From a micro-foundations perspective, does the ...
2
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0answers
19 views
Are heterogenous expectations models still determinate, closed models?
Cars Hommes proposed many models based on agents having heterogeneous expectations. Agents switch between a fixed set of prediction rules depending on their forecast error history. However, it seems ...
1
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1answer
36 views
Why does a model that is used for policy analysis needs its shocks and parameters to be structural (= invariant) to the shock under consideration?
In their paper, " New Keynesian Models: Not Yet Useful for Policy Analysis"
V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan
argue that one needs a structural model in order to analyse the ...
0
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1answer
94 views
Are overlapping generation (OLG) models extensions of a DSGE model?
Are overlapping generation models (OLG) extensions of a dynamic stochastic general equilibrium (DSGE) model? Or aren't these DSGE per se?
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16 views
Inertia and rational expectations DSGE models
What types of inertia or other phenomena in the data are hard to model with New Keynesian or other DSGE models assuming rational expectations?
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12 views
What is the name for the techniques that are used to determine the determinacy of DSGE models with rational expectations?
What is the name for the techniques that are used to determine the determinacy of DSGE models with rational expectations?
For some context, see e.g. the work of THE SOLUTION OF LINEAR DIFFERENCE ...
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1answer
37 views
Positive productivity shock with a fall in output
I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive ...
3
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0answers
43 views
Elasticity of substitution in leisure
This might be a very basic question, but I am a beginner in macro models. I would appreciate help with my doubt.
In different papers I have read about the elasticity of labor supply or the inverse of ...
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0answers
14 views
Are typical macro DSGE (RBC or New Keynesian DSGE) models linear, non-linear, or log (linearized)?
In Carl Hommes 2015 book on Expectations, it seems he considers DSGE models (being it either RBC DSGE or New Keynesian DSGE) to be linear, or (log)linearized models, on page 3 of the introduction. He ...
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1answer
20 views
What are main reasons a typical DSGE model is called non-linear? Why are these non-linearities important?
What are main reasons a typical DSGE model is called non-linear? Why are these non-linearities important? Is a non-linear model inherently less stable than a linear model? Why?
2
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0answers
41 views
Log-linear version of current account equation
I am working on my thesis, doing a two-country model with traded and non-traded goods considering incomplete asset markets and imperfect pass-through. In a sense, I am following Benigno & ...
0
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1answer
56 views
Log-linearization of real exchange rate
I have a doubt on how to log linearize an expression for the real exchange rate. I have read in several papers that they express it using substitutions. I haven't been able to find out what ...
0
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1answer
73 views
Log-linear version of the uncovered interest rate parity
I am trying to derive the log-linear version of the uncovered interest rate parity under complete asset markets.
I know that the UIP condition is given by
$$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$
I ...
1
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0answers
34 views
Non-traded goods in Two Country New Keynesian Model
I am working on a two-country New Keynesian model, where I include traded and non-traded goods. The final good is produced using traded and non-traded inputs:
$$
Z_t=\bigg[a^\frac{1}{\kappa}Z_{T,t}^{\...
0
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1answer
69 views
Questions about the future of macroeconomic modeling and the role of simultaneous equation systems
I started to study about macroeconomic modeling and I am interested in the following questions. I understand that there are no definite answers to these questions. But I am interested in the opinion ...
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1answer
33 views
DSGE model with agents that develop their skills
Are there DSGE models with agents with different skill levels (and according wage differences) who can develop or lose their skills and with employees with dynamic/changing skill levels and skill ...
2
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1answer
180 views
Solving Euler Equation for standard DSGE Models
I am studying a rather standard DSGE Model with a standard Utility function $U = f(c_t, n_t, M_t)$ subject to a budget constraint. Now, tosolve the intertemporal optimization problem I have, or ...
0
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1answer
20 views
Where to find series of capital-output ratio for the US?
While the capital-output ratio is widely used in Macroeconomics as a target in calibration, it is usually just set to be equal to 3, without specifying the data source nor the methodology used to ...
0
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1answer
33 views
Percentage/proportion of published papers with DSGE models
I remember reading a few years back an article that showed an interesting graphic with the percentage/proportion of published papers with DSGE models across time. I've tried searching, but I get so ...
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0answers
52 views
What's the advantage of DSGE relative to BVARs?
DSGE models and BVARs are commonly used in academia and policy circles.
They generate different performances (e.g., in forecasting) and perhaps serve different purposes. Notwithstanding, they have a ...
3
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1answer
77 views
Is there any mainstream criticism of the Benes-Kumhof conclusion that the Chicago Plan would improve the US economy nowadays?
A 2012 IMF Working paper by Benes and Kumhof "The Chicago Plan Revisited
" has this abstract, finding in favor of the Chicago Plan an all counts basically:
At the height of the Great Depression a ...
3
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1answer
187 views
What is the appeal of DSGE models?
As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation.
They appear to explain observations in a ...
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0answers
24 views
Deriving Sufficient Conditions For Existence of Unique Non-Explosive Equilibrium In DSGE Model With Hybrid New Keynesian Phillips Curve
Consider the following New Keynesian DSGE Model with standard notation:
$\pi_t = \kappa y_t + \gamma_f \mathbb{E}_t[\pi_{t+1}] + \gamma_b \pi_{t-1},$
$y_t = \mathbb{E}_t[y_{t+1}] - \frac{1}{\sigma}(...
1
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0answers
15 views
Optimal Tax Rates on BGP
I was going through this paper by Aghion et al. I wanted some clarification on some of the computations. I understood the process uptil the normalization on page 22. Then we can get some policy rules ...
