8
votes
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Does julia's speed advantage over python make any difference for DSGE modeling?
Julia is actually a lot faster than Python, also when running DSGE models.
The NY FED moved their DSGE model to Julia because it allows them to:
Estimate models 10x faster
Complete 'solve' test 11x ...
- 4,121
7
votes
Textbook on the mathematics of RBC/DSGE models?
The mathematical theory behind DSGE models can be found in any textbook on stochastic dynamic optimisation.
One common reference that economists use for this is Stokey, Lucas and Prescott. Of course, ...
- 2,156
6
votes
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Intuition for the CES consumption index in New-Keynesian DSGE models
Heuristically, you can think of the integral as just a sum:
$$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$
where $\bar{C}$ is an index of ...
- 2,156
6
votes
Interest rate rule in monetary DSGE model
I've just solved this problem. First of all, your solution does not make too much sense, as in a simple interest rate rule it must hold that the sum of all coefficients must be greater than one. In ...
- 148
6
votes
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Ultra simple DSGE to implement
As mentioned by Michael quantecon has good resources. Here is an example of very simple DSGE model from quantecon.
I am not sure if you can get to as low as 3 equations but here is very simple example ...
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5
votes
Ultra simple DSGE to implement
Jordi Galís book "Monetary Policy, Inflation, and the Business Cycle" features the 3-equation "Simple New Keynesian" Model:
\begin{align*}
\pi_t &= \beta E_t[\pi_{t+1}] + \...
- 101
5
votes
Does julia's speed advantage over python make any difference for DSGE modeling?
There are certainly cases where the performance differences between Python and Julia matter, but solving a simple DSGE model is not one of them.
There have been some formal comparison exercises (e.g., ...
- 185
5
votes
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What are the assumptions made about fixed points in the dynamics equations of Recursive macroeconomics?
On pages 53-55 of the Stokey, Lucas, with Prescott (1989) book they discuss the Contraction Mapping Theorem. This theorem guarantees existence and uniqueness of the solution (one fixed point).
The ...
- 574
4
votes
Accepted
What is the appeal of DSGE models?
To summarize what I wrote below, there seem to be at least two points:
In the Smets and Wouters (ECB) research, which is apparently responsible for a lot of the fame of DSGE, they indeed found it ...
4
votes
How to derive the measurement equation for the state-space representation of a DSGE model?
First, you can also have a state-space setup for a model which is not log-linearised. It is the combination of the solution of your model (that you get by using Sims, Klein, Binder-Pesaran, or ...
- 61
3
votes
What exactly is certainty equivalence in the context of DSGE models?
Intuitively, it means that the model has such characteristics that "the best we can say" about remaining uncertainty, is that it will be zero. From general experience, we know that it won't be zero, ...
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3
votes
Accepted
intuition behind the blanchard kahn conditions?
The condition that unstable eigenvalues equal in number the control/decision/non-predetermined variables is equivalent to the requirement that a model possess the "saddle point property".
Of more ...
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3
votes
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Literature on DSGE models featuring a financial sector
This is actually one of the more exciting development in DSGE modelling since financial crisis. Including financial sector or friction is definitely a growing area of research and interest.
...
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3
votes
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Separation rate
They consider a model with two islands: a Production island and a Leisure island.
Every transition from a period $t$ to a period $t+1$ is split into two parts.
People who are in the Production island ...
- 12.5k
3
votes
Accepted
Economic growth in a DSGE model, despite mean-zero shocks
Yes, there are DSGE models that can be used for forecasting.
These models typically have a particular kind of steady-state, which is, more precisely, called balanced growth path (BGP). On the BGP (in ...
- 1,652
3
votes
Accepted
Log-linearizing a second order term around the steady-state
If $\Pi_t$ is gross inflation then indeed $(\Pi_t-1)^2$ is a second-order term and is approximately zero. For example, for a reasonable quarterly steady state gross inflation rate of 1.005, the term ...
- 1,652
3
votes
Accepted
Log-Linearization in Calvo Pricing
There is a typo in your (B.2.4). I believe the right-hand side should include a $P_{T,t-1}^H$ term. That is, it should be $P_{T,t}^H=\left[\theta_T (P_{T,t-1})^{1-\varepsilon}+(1-\theta_T)(\bar{P}_{T,...
- 827
2
votes
Accepted
Depreciation vs. obsolescence in RBC and New Keynesian DSGE models
On the empirical side, there might be answers for you in the national accounts. I only know about the french case : the french statistical institute (INSEE) has different depreciation data for ...
- 170
2
votes
Log linearization of the technology dynamic
The shock process is already linear. any log linearisation will result in identical expression. The underlying non linear shock process can be something like this:$
$$ Z_t = Z^{(1-\rho)} Z_{t-1} e^{\...
- 166
2
votes
Accepted
Evaluation around steady state for a specific DSGE Model
I found the error in my derivation: I mistakenly supposet that the steady state of $p_t+1$ equals $\bar{\rho}$.
I did not recognize that p was different from $\rho$ because of the poor quality of my ...
- 153
2
votes
Good paper/article on the mechanisms in RBC vs New Keynesian models
If possible, clarifying what exactly you're most interested in might help answers be more on point and useful. Are you interested in the mechanisms that cause a one-period shock to last (and not just ...
- 1,380
2
votes
Accepted
Basic New Keynesian Model - Price and Wage Level after shock
Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-...
- 106
2
votes
Differences between GMM and MSM?
While in GMM one uses theoretical analytical moments, in MSM one uses simulated theoretical moments instead.
For GMM,
[t]he method requires that a certain number of moment conditions were ...
- 2,385
2
votes
How to derive the measurement equation for the state-space representation of a DSGE model?
Hi: I can't speak for DSGE models specifically but, in more standard "rational expectations" econometrics, the measurement equation usually comes from some assumed linear relation between the ...
- 583
2
votes
Log-linear version of the uncovered interest rate parity
It’s derived as follows. First start with original equation.
$$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$
Take natural logs of both sides:
$$\ln(1+i_t)=\ln(1+i^*_t)+\ln(S_{t+1}) -\ln(S_t)$$
Now you ...
- 57.7k
2
votes
Accepted
Questions about the future of macroeconomic modeling and the role of simultaneous equation systems
Is there future for DSGE?
Well, DSGE stands for dynamic stochastic general equilibrium models. You can’t really model time series appropriately without the dynamic stochastic part, and when it comes ...
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2
votes
Accepted
Why does a model that is used for policy analysis needs its shocks and parameters to be structural (= invariant) to the shock under consideration?
This is due to the famous Lucas critique.
To make long story short, in the past in the heyday of Keynesian macroeconomics it was quite normal for macroeconomists to just postulate some relationships ...
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2
votes
Accepted
Are overlapping generation (OLG) models extensions of a DSGE model?
You can find OLG models that do not classify as DSGE (in particular, the model might not be stochastic) as well as DSGE with overlapping generations (contrary to those with infinitely lived agents).
...
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2
votes
Accepted
Are business cycle fluctuations usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?
Business cycle fluctuations can be studied in many ways including also growth models. An example of using growth model to study business cycle would be this 1995 paper by Cho & Cooley. This being ...
- 57.7k
2
votes
Accepted
What is meant by the abbreviation 'MSV solution', used in the context of DSGE modeling?
Minimum state variable (MSV) solution is a special technique used to find an unique equilibrium with desirable properties in DSGE models. Often DSGE models can have multiple paths that will satisfy ...
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