DSGE Modeling at the Fund: Applications and Further Developments
42 Pages Posted: 28 Nov 2007
Date Written: August 2007
Researchers in policymaking institutions have expended significant effort to develop a new generation of macro models with more rigorous microfoundations. This paper provides a summary of the applications of two of these models. The Global Economy Model is a quarterly model that features a large assortment of nominal and real rigidities, which are necessary to create plausible short-run dynamics. However, because this model is based on a representative-agent paradigm, its Ricardian features make it unsuitable to study many fiscal policy issues. The Global Fiscal Model, which is an annual model that uses an overlapping-generations structure, has been designed to analyze the longer-term consequences of alternative fiscal policies.
Keywords: Working Paper, Fiscal policy, Economic models, Monetary policy
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