Questions tagged [dsge]

DSGE - Dynamic Stochastic General Equilibrium models.

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Can Dynare solve general equilibrium (GE) models with non-convex adjustment costs?

I know that Dynare (which sits on top of Matlab) can solve many kinds of dynamic stochastic general equilibrium (DSGE) and overlapping generations (OLG) models. I also know that Dynare can handle some ...
6
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1answer
706 views

What exactly is certainty equivalence in the context of DSGE models?

I keep reading about certainty equivalence in the context of DSGE models. I understand that it has something to do with "Getting rid of the expectation operator", but I'm not entirely sure? ...
6
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1answer
148 views

State of general equilibrium theories Post Blanchard 2008

This question arose from a useful comment I received upon answering a question on this site, and a recent question from a doctoral student. The so-called theory of general equilibrium (including the ...
5
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1answer
281 views

Differences between GMM and MSM?

In wikipedia, the main difference between GMM and MSM(Method of simulated Moments) is in the former the moment/orthogonality conditions can be evaluated analytically, while in the latter they cannot ...
5
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1answer
137 views

What methods - inspired by Haavelmo’s Structural Econometrics - can show that a partial equilibrium model is unreliable?

According to Spanos 2014 Revisiting Haavelmo's Structural econometrics: Bridging the gap between theory and data Dynamic Stochastic General Equilibrium models are statistically inadequate, in such an ...
5
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1answer
58 views

In economic modelling, how are we sure the linearized equilibria behave similarly to original equilibria?

The following problem is in the context of continuous time, although I suspect something could be said about discrete time also. Let's assume that we have the following equation: $$\dot x=f(x)$$ ...
4
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1answer
1k views

DSGE models (Dynare) are only based on simulations and approximations? (without data)

I'm beginner in DSGE models. Are they only based on simulations and approximations? Don't we have any real data-sets (for example interest rate, labor force, etc) ...
4
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1answer
476 views

Good paper/article on the mechanisms in RBC vs New Keynesian models

I have read technical books about the (baseline) RBC and New Keynesian models. However, these books tend not to explain very intuitively the propagation mechanisms of shocks between the two models, ...
3
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1answer
1k views

Government expenditure multiplier in the new-Keynesian model?

Does a temporary increase in government expenditure increase output in the standard new-Keynesian DSGE model? Is it possible to draw any intuitive parallels between the impact of government ...
3
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1answer
119 views

Convert DSGE paper to structural econometrics, anything to be noted?

I'm intent to bring some insights of a DSGE paper to a structural econometric model. The paper is Liu, Wang and Zha's 2013 Econometrica paper on land collateral channel. Now I have some good datasets ...
3
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1answer
41 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 & ...
3
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1answer
69 views

Basic New Keynesian Model - Price and Wage Level after shock

I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work. Everything has worked out fine ...
3
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1answer
3k views

intuition behind the blanchard kahn conditions?

In order for a DSGE model to have a unique solution, it is required to satisfy the Blanchard Kahn conditions. However, these conditions seem very abstract to me. Is there an intuition behind the ...
3
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1answer
66 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
161 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 ...
3
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0answers
36 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 ...
3
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1answer
89 views

How to derive the measurement equation for the state-space representation of a DSGE model?

DSGE models, after log-linearisation, have a state-space representation. In this representation, in most papers, the measurement/observation equation is simply stated. I'm wondering how one deduces ...
3
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1answer
109 views

Value function iterations with hyperbolic discounting

I am currently working to the numerical solution of a model similar to the consumption-savings decision model with hyperbolic discounting as in Krussel et al. (2003). Even if hyperbolic discounting ...
2
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1answer
371 views

Interest rate rule in monetary DSGE model

I am studying DSGE models and try to solve exercise 2.2 from Gali's (2008) book. In short, consider the simple classical economy where the following approximate equilibrium conditions must be ...
2
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1answer
20 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 ...
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0answers
21 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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0answers
43 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 ...
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0answers
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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 ...
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0answers
35 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 & ...
2
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0answers
50 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 ...
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0answers
61 views

Cleaning data for DSGE model estimation: An and Schorfheide (2007)

In Herbst and Schorfheide "Bayesian Estimation of DSGE Models", in the appendix named "Data Sources", they show several formulas relating the empirical data which should be used for the model. Here's ...
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0answers
48 views

What are the linearised equations for the flexible economy in Smets and Wouters (2007)?

To solve the Smets and Wouters (2007) model, we need the linearised equation for the economy when wages and prices are flexible (monetary policy rule depends on the potential output). However, in ...
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0answers
26 views

How to deal with potential output in the Sims (2002) framework?

In Sims(2002), the author explains how one solves a linear rational expectations model. $$\Gamma_0S_t=\Gamma_1S_{t-1}+C+\Psi z_t + \Pi \mu_t$$ The only thing exogenously defined in the $z_t$ ...
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0answers
294 views

What are some good video lectures on DSGE modeling?

Are there any online resources on Dynamic Stochastic General Equilibrium models supplied with video lectures, which include theory and some practical examples of fitting models as well? I did not find ...
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1answer
604 views

Textbook on the mathematics of RBC/DSGE models?

I'm reading David Romer's Macroeconomics. However, what I don't like is that he doesn't go at all into detail about the mathematical underpinnings of RBC/DSGE models. When it comes to the central ...
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1answer
356 views

Log linearization of the technology dynamic

I am still dealing with DSGE models and with log-linearization of characteristic equations of the model. The one that creates me more doubts is the technology shock, that is usually modeled as an AR(1)...
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1answer
24 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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1answer
116 views

DSGE Model Solutions as a Vector Time-Series process. Examples?

I'm trying to understand how the solutions of a DSGE model can be seen as VAR or VARMA. Can you give examples of DSGE model solutions which can be seen as such? Also, does this only happen when we ...
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1answer
144 views

Evaluation around steady state for a specific DSGE Model

The following equations are taken from Ravenna, walsh: "Optimal Monetary Policy with Unemployment and Sticky Prices" (2011). (i)$$\frac{Z_{t}}{\mu_{t}} = w_t + \frac{\kappa}{q_{t}} - (1-\rho)E_{t}(\...
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0answers
6 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 ...
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0answers
14 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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0answers
12 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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0answers
31 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}^{\...
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1answer
112 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 ...
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0answers
22 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}(...
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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 ...
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0answers
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Deducing eq. (39) of Sims (2002)

Here's the Sims(2002) paper How does one deduce equation (39) from that paper? Any help would be appreciated.
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0answers
358 views

SVAR Historical decomposition

Does anyone know how to do VAR historical decomposition of a series in R?
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1answer
259 views

Intuition for the CES consumption index in New-Keynesian DSGE models

I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and ...
0
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1answer
41 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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1answer
35 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 ...
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1answer
65 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
69 views

Depreciation vs. obsolescence in RBC and New Keynesian DSGE models

A common calibration for depreciation rates within RBC models is to assume 10% depreciation rate (based on NIPA stats, for instance). This implies a half-life of about 6.5 years. But this estimate ...
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1answer
35 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 ...
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1answer
28 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 ...