QUEST III : برآورد مدل اقتصاد باز DSGE از منطقه یورو با سیاست های پولی و مالی

This paper develops a DSGE model for an open economy and estimates it on euro area data using Bayesian estimation techniques. The model features nominal and real frictions, as well as financial frictions in the form of liquidity-constrained households. The model incorporates active monetary and fiscal policy rules (for government consumption, investment, transfers and wage taxes) and can be used to analyse the effectiveness of stabilisation policies. To capture the unit root character of macroeconomic time series we allow for a stochastic trend in TFP, but instead of filtering data prior to estimation, we estimate the model in growth rates and stationary nominal ratios.

In this paper we develop a Dynamic Stochastic General Equilibrium (DSGE) model for an open economy. We estimate this model on quarterly data for the euro area using Bayesian estimation techniques. Following Christiano, Eichenbaum and Evans (2005) considerable progress has been made in recent years in the estimation of New-Keynesian DSGE models which feature nominal and real frictions. In these models, behavioural equations are explicitly derived from intertemporal optimisation of private sector agents under technological, budget and institutional constraints such as imperfections in factor, goods and financial markets. In this framework, macroeconomic fluctuations can be seen as the optimal response of the private sector to demand and supply shocks in various markets, given the constraints mentioned above. DSGE models are therefore well suited to analyse the extent to which fiscal and monetary policies can alleviate existing distortions by appropriately responding to macroeconomic shocks. Following Smets and Wouters (2003) DSGE models have been used extensively to study the effects of monetary policy and the stabilising role of monetary rules. In particular it has been demonstrated that an active role for monetary policy arises from the presence of nominal rigidities in goods and factor markets. So far, not much work has been devoted towards exploring the role of fiscal policy in the New-Keynesian model. Our paper therefore extends this literature by incorporating and estimating reaction functions for government consumption, investment and transfers into a DSGE model. There is substantial empirical evidence that prices and wages adjust sluggishly to supply and demand shocks as documented in numerous studies of wage and price behaviour, starting from early Phillips curve estimates (see, for example, Phelps, 1967) and extending to recent estimates using both backward as well as forward looking price and wage rules (see e.g. Gali et al., 2001). The recent work by Gali et al. (2007), Coenen and Straub (2005) and Forni et al. (2006) has also highlighted the presence of liquidity constraints as an additional market imperfection. The introduction of non-Ricardian behaviour in the model could give rise to a role for fiscal stabilisation, since liquidity-constrained households do not respond to interest rate signals. Obviously, a prerequisite for such an analysis is a proper empirical representation of the data generating process. The seminal work of Smets and Wouters (2003) has shown that DSGE models can in fact provide a satisfactory representation of the main macroeconomic aggregates in the Euro area. Also, various papers by Adolfson et al. (2007) have documented a satisfactory forecasting performance when compared to standard VAR benchmarks. This paper extends the basic DSGE model in four directions. First, it respects the unit root character of macroeconomic time series by allowing for stochastic trends in TFP. Unlike many other estimated DGSE models, we do not detrend our data with linear time trends or the Hodrick–Prescott filter, but we estimate the model in growth rates and nominal ratios. Secondly, it treats the euro area as an open economy, which introduces additional shocks to the economy through trade and the exchange rate. Thirdly, it adds financial market imperfections in the form of liquidity-constrained households to imperfections in the form of nominal rigidities in goods and labour markets. Fourthly, it introduces a government sector with stabilising demand policies. We empirically identify government spending rules by specifying current government consumption, investment and transfers as functions of their own lags as well as current and lagged output and unemployment gaps and we allow a fraction of transfers to respond to deviations of government debt from its target. From the operation of the euro area unemployment insurance system we know that unemployment benefits provide quasi-automatic income stabilisation. Indeed we find a significant response of transfers to cyclical variations in employment. A priori government consumption is not explicitly countercyclical, though it can already provide stabilisation by keeping expenditure fixed in nominal terms over the business cycle. The empirical evidence suggests that fiscal policy is used in a countercyclical fashion in the euro area. Our paper is structured as follows. In the following section we describe the model and characterise the shocks hitting the euro area economy. Section 3 presents the empirical fit of our DSGE model and we present priors and posterior estimates as well as the variance decomposition of the model. In Section 4 we analyse the impulse response functions of the main macroeconomic variables to structural shocks.

In this paper we have described the estimation of an open open-economy DSGE model for the euro area. So far most estimated DSGE models have mainly been concerned with monetary policy analysis. We have extended the model by incorporating fiscal reaction functions that allow the model to be used for fiscal policy analysis. Fiscal policy is effective in the model as we allow for financial market rigidities that force some households to consume their current wage and transfer income. Our paper differs also from other estimated DSGE models in that it treats the euro area as an open economy and is not estimated using detrended data, which allows us to analyse the effects of non-stationary productivity shocks. The model can also match the declining wage share through the share of overhead labour in total employment and rising mark ups (see Appendix 6). In future research we intend to extend this analysis in various directions. It would be interesting to explore how the stabilising properties of the estimated rules compare to simple optimal rules. We have also disregarded automatic stabilisation from other revenue components. This requires a more careful analysis of various tax rules. In future research, more attention will also have to be devoted to fiscal stabilisation at the level of euro area member states.