Many recent discussions on the conduct of monetary policy through interest rate rules have given a very central role to inflation, both as an objective and as an intermediate instrument. We want to show that other variables like employment can be as important or even more. For that we construct a dynamic stochastic general equilibrium (DSGE) model where the economy is subject to demand and supp...

In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that the standard Taylor (1993) rule response in models with and without nominal rigidities is to increase ...

This paper studies the impact of COVID-19 pandemic on sustainability Chinese economic growth, government debt, and income inequality by constructing a new Keynesian dynamic stochastic general equilibrium (NK-DSGE) model. The choice monetary policy targets is then analyzed to hedge pandemic. We find that: (1) aggregate demand labor shocks caused posed serious challenges sustainable development e...

In response to the economic fallout from coronavirus (COVID-19) pandemic, European Council agreed on Next Generation EU (NGEU) instrument. NGEU allows Commission issue debt finance grants and loans Member States, with disbursement of funds intended be weighted towards countries most affected by crisis. This paper assesses macroeconomic impact euro area different uses NGEU, using a large dynamic...

This study explores three alternative econometric interpretations of dynamic, stochastic general equilibrium (DSGE) models. (1) A strong econometric interpretation takes the model literally and directly produces a likelihood function for observed prices and quantities. It is widely recognized that under this interpretation, most DSGE models are rejected using classical econometrics and assigned...

Abstract Exchange rates have raised the ire of economists for more than 20 years. A problem is that there appears to be no exchange rate model that systematically beats a naive random walk in out of sample forecasts. Economists also find it irksome that theoretical models are unable to explain short-, medium-, and long-run exchange rate movements. Engel and West (2005) show that these failures ...

This paper estimates the parameters of a stylized dynamic stochastic general equilibrium model using maximum likelihood and Bayesian methods, paying special attention to the issue of weak parameter identification. Given the model and the available data, the posterior estimates of the weakly identified parameters are very sensitive to the choice of priors. We provide a set of tools to diagnose w...

This paper considers issues related to identification, inference, and computation in linearized dynamic stochastic general equilibrium (DSGE) models. We first provide a necessary and sufficient condition for the local identification of the structural parameters based on the (first and) second order properties of the process. The condition allows for arbitrary relations between the number of obs...

The design of China’s industrial carbon reduction policies is still in its early stages, so currently, comparing the effectiveness various emission can help China policies. This paper develops a dynamic stochastic general equilibrium (DSGE) model manufacturing industry and investigates impact innovation on environmental protection technology, emissions tax, government expenditures output indust...